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 Government’s cost of borrowing to decrease soon – Terkper

bycitibusinessnews
October 10, 2016
in Banking And Finance, Government, Local Economy, Top Stories
Finance Minister, Mr. Seth Terkper

Former Finance Minister, Mr. Seth Terkper

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Government is optimistic its cost of borrowing on the international market will reduce as it realigns its fiscal policies and enhance financial discipline.

Ghana’s cost of borrowing on the international market had gone up to about 10.25 percent until government recently issued its 5 year 750 million dollars Eurobond, at a coupon rate of 9.25 percent.

Some financial watchers have criticized the increasing cost of borrowing for the country on the international market, blaming the high interest rate on economic instability and growing debt.

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But speaking to Citi Business News, Finance Minister, Seth Terkper was optimistic Ghana’s programme with the IMF and the ongoing fiscal consolidation will soon move the cost of borrowing for the country to about 8.5 percent.

“Already our arrears have been going down as the interest rates that we pay have been going down as was demonstrated from the last bond that we issued. We are hopeful that this would bring us back to the 8.25 and 8.5 percent range, which is where we have been and if we handle things well,” he indicated.

“We are hopeful we will see a decline and as we head to the good face of the economy, we can see the interest we pay on our bonds both primary and secondary. I emphasize the secondary because we are now doing the buy back; going down probably below 8% mark and remaining there,” Mr. Terkper added.

Government last month (September 8, 2016) issued its fifth Eurobond of 750 million dollars at a yield of 9.25 percent a few points lower than the last one which was at 10.75 percent.

The bond which though was oversubscribed with orders exceeding 4 billion dollars has a tenor of 5 years.

The bond has been met with heavy criticisms from economists including Dr. Mahamoud Bawumia, a former Deputy Governor of the Bank of Ghana.

The 5 years for maturity of the Eurobond is the shortest period in the history of Eurobond issues in Ghana and the principal will be expected to be repaid in three installments of US$250 million in September 2020, September 2021 and September 2022.

An economist, Dr. Laud Mensah has however suggested that the lack of investor confidence in the Ghanaian economy, led to the reduced maturity period for government’s 750 million dollar Eurobond.

According to him, the lack of trust in the Ghanaian economy led to a coupon rate of 9.25%.

The Economist therefore suggested that efforts be put in place to improve the economy by channeling returns on bonds into more productive ventures and reap positive outcome.

“Already, the global markets are not favoring per say and so investors will not invest their monies in Ghana. Also, looking at Ghana, investors know that a chunk of the revenue being generated internally (aside moral hazards associated with it), have been put into businesses or projects that are sub-standards,” he advised.

–

By: Lawrence Segbefia/citibusinessnews.com/Ghana

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