Accra, Ghana, February 9, 2020//-The appetite for borrowing by the Akufo-Addo government has reached its crescendo, following the recent issuance of a 40-year Eurobond on the international market.
However some economic experts and opposition politicians are unhappy with the government’s decision to abandon the country’s National Development Plan which was launched by the previous Mahama government while borrowing for 40 years.
Senior Minister, Yaw Osafo-Maafo, had earlier kicked against the plan by saying that a long-term plan for national development must not go beyond 10 years due to the whole “architecture of the world thinking and ideology.”
In his words: “I do not believe in planning beyond 10 years, because of the stringency of world economics, and therefore I would prefer that we restrict ourselves to a 10-year development plan.
But the same government is borrowing for 40 years.
When the African Eye Report contacted a former Minister for Communications & Presidential Spokesperson, Dr Edward Kofi Omane Boamah for comments on this development, he said: “If you fail to plan, you plan to fail”.
This implies that the government plans to fail by not adopting the comprehensive 40-year plan.
“Therefore failing to have a plan for the next four decades may make amortization of the 40-year bond difficult for future generations”, Dr Omane cautioned.
Debt Sustainability Deteriorating
When adds the $3 billion Eurobond to the country’s total debt stock of about GHC215 billion, it will further worsen Ghana’s debt sustainability position.
Professor John Gatsi, a renowned Ghanaian economist lamenting that Ghana’s debt sustainability (measured by Debt-to-GDP, benchmarked internationally at 60%) is deteriorating.
He believes that for a middle income country like Ghana, even if this ratio is above 60%, it should be anchored on robust interest payments to tax revenue ratio and revenue to GDP.
However, these ratios according to him have deteriorated over time in the face of rising public debt levels, currently nearing GHC215 billion as reported by the Bank of Ghana in its latest Summary of Economic and Financial Data – 2020.
Prof. Gatsi explained that even though the Debt-to-GDP ratio benefited heavily from statistical rebasing of the economy in 2018, the ratio since late 2018 has been deteriorating from 57.6% of GDP to 62.1% of GDP.
It is a time tested financial principle that when debt is used to finance strategic projects it leads to sustainable benefits but the borrower must respect the practical stage where more borrowing is distressful to the economy, he stressed.
Align borrowing
He advised borrowing should be aligned with clear development plans. That with weak revenue base becomes a burden and fails the transformation dream.
Prof Gatsi who is also the Dean of the School of Business of the University of Cape Coast (UCC) further explained that Ghana’s debt burden should be seen in how more than 40% of tax revenue (GHC 19.7 billion) generated in 2019 was consumed by debt repayment alone, yet less than GHC10 billion of tax revenue was spent on capital expenditure.
He cautioned that Debt-to-GDP ratio, as a mere indicator, does not and will not help to pay Ghana’s public debts. Instead, it is tax revenue that partly helps to pay and mitigate the debt burden.
Prof Gatsi observed that the trend of refinancing of maturing debts with new bonds that have longer maturity dates does not immune the economy from the payment of annual and semiannual coupons using tax revenue.
To this end, he advised that improved revenue performance is urgent to save the deteriorating trend, since a small tax revenue base signals a pronounced risk for the Ghanaian economy.
Eurobond will reflect in pockets
However Ghana’s Minister of Finance, Ken Ofori-Atta is emphatic that the successful sale of a $3billion Eurobond during the recent roadshow will reflect in people’s pockets.
According to him, the Eurobond proceeds would enable the government to continue its flagship initiatives.
On Tuesday 4 February, 2020, Ghana sold the largest ever Eurobond in sub-Saharan Africa. The country issued a $750 million tranche, which amortizes and has an average life of 40 years, at about 8.9 percent from an initial 9.4 percent. This makes it the highest-yielding sovereign dollar bond so far in 2020.
The bond was sold as part of a $3 billion deal that was almost five times oversubscribed. Premium investors which include Bank of America, JPMorgan, Morgan Stanley, Standard Bank Group Ltd., and Standard Chartered Plc arranged Tuesday’s sale.
It would be recalled that the then National Democratic Congress (NDC) government, led by John Mahama, in August 2015, launched a 40-year National Development Plan for Ghana (2018-2057), to provide a framework for national development which is binding on successive governments. But the current government refused to follow the plan on the assumption of power.
The 40-year development plan was born out of the recommendations of the Constitution Review Commission of 2010.
African Eye Report
