An economist at the University of Ghana, Professor Godfred Bokpin has stated that government’s decision to go into the bond’s market, locally to issue 500 million cedis domestic securities may bring some relief to banks in the country.
Government announced last week that it is set to issue its first three year bond to raise about half a billion Ghana cedis using the book building route.
According to Professor Bopkin, even though the move may crowd out the private sector from accessing funds, it may also offer some comfort for banks that are trying to cut down lending to the private sector due to increased risks as a result of the economic conditions and the recent power crisis.
“As a result of the macro instability, electricity shortages, and the huge infrastructure deficit, the private sector has been largely unattractive to the banks. If you look at the micro, medium and small scale enterprises, times are difficult; so the banks will find comfort in lending to the government where there is zero percent default rate”, he said.
He was of the view that the banks will pick the signals and see the announcement as an opportunity to invest for good returns since the private sector may not accept the credit at the current interest rates.
Touching on the implications on the public debt, Professor Bokpin stated that currently, government has no other option than to resort to the domestic market to raise funds for infrastructure development.
He pointed out that, any attempt by government to increase taxes now may not appear economically prudent since the ordinary Ghanaian is already burdened with imposition of tax.
So far, government has raised about GH¢10.62 billion cedis through various debt securities and going by the Bank of Ghana’s notice served of government’s plan, the total value of issued securities this year will reach GH¢15.5 billion by the end of the April.
According to the Bank of Ghana, Ghana’s debt currently stands at $25.6 billion as at December last year and it’s seen by rating agency, Fitch, which recently maintained Ghana’s credit ratings at B with negative outlook as a worrying situation.
By: Lawrence Segbefia /citibusinessnews.com/Ghana