Ken Ofori-Atta
PARLIAMENT HAS granted approval for the government to raise sovereign bonds of $3 billion to support the 2021 budget and liability management with the option to increase the sovereign bonds to $5 billion, should market conditions prove favourable.
The request was laid in the House on Friday, October 30, 2020 by the Minister of Finance, and referred to the Committee on Finance for consideration and report.
In line with government’s debt strategy, the annual non-concessional debt limits and consistent with the 2021 Expenditure in Advance of Appropriation, the proposed bond programme would enable government address the challenging international capital market conditions, which had been negatively impacted by the global spread of the Covid-19 pandemic by pushing market risk aversion to its highest level since the global financial crisis.
The government said the proceeds of up to $1.5 billion would be applied for budget support to finance growth oriented expenditures in the 2021 Budget, while $1.5 billion would be used for re-profiling domestic debt and to conduct liability management of refinancing all or part of the 2023 Eurobonds.
The profiling of domestic debt and buybacks of Ghana’s Eurobonds are consistent with the public debt liability management programme of the government since 2017.
The Finance Minister noted that the liability management would not add up to the existing debt stock, but would rather reduce the rollover, refinancing and interest cost risks in the public debt portfolio.
He said government also envisaged that this would diversify the current investor base, explore all available possible financing sources on the international capital market by including any or a combination of diaspora bonds, social bonds, green bonds, sustainable bonds and syndicated/bridge loans subjected to market conditions.
Observations
The committee was informed that the objective of seeking an earlier parliamentary resolution for the bond issuance programme per the Expenditure in Advance of Appropriation was that the international capital market was usually awash with liquidity in the first quarter of the year.
Chairman of the Finance Committee, Dr. Mark Assibey-Yeboah, said that was what enabled Ghana to execute two consecutive $3 billion issuances at the lowest coupon rates in 2019 and 2020.
“Due to the Covid-19 pandemic, governments, central banks and financial institutions are mobilizing funds to halt a potential global recession. The Covid-19 related sovereign downgrades and negative outlooks have further exacerbated this difficult situation and reduced liquidity and interest,” he indicated.
According to him, the Ministry of Finance was certain of the uncertainties for 2020, but uncertain about the 2021 fiscal year and would, therefore, deem it as a prudent financial management stance of securing significant external financing earlier in a fiscal year, especially during a global crisis.
By Ernest Kofi Adu, Parliament House