Saturday, 25 November 2017

Gov’t cautioned not to issue Eurobonds

Image result for EUROBOND
Adnan Adams Mohammed

Some economists and financial analysts have cautioned government to look for other alternatives to finance government’s spending rather than issue Eurobonds.

This is against the backdrop of the Finance Minister’s plan  of issuing  Eurobonds to the tune of GHC 1.0 billion.

The 2018 national budget read in parliament fortnight ago by Finance Minister Ken Ofori-Atta has an overall budget deficit of GHC10.9 billion.

This means that government intends to spend in excess of GHC10.9 billion in relation to its projected revenue.

By this the Finance Minister will have to look for the said amount either through borrowing.

One option available to government is the 5 percent deficit financing allowed of the Bank of Ghana to finance government spending, but it is an option the International Monetary Fund vehemently oppo

 Eurobond issuance seem to be the option taken by government. However, an economist and Head of Finance at the University of Ghana Business School, Professor Godfred Bokpin warns that it may come with its own challenges if the economic fundamentals are not stable

Moreover, the Head of the Economics Department at the University of Ghana, Professor Peter Quartey is of the view that government may find innovative ways to finance the deficit even though central bank financing is cheaper.

“It is too early now. The government has a full year to implement the provisions in the budget. Government may get the money. But in BoG financing, there is a limit, it's 5 percent. When the need arises, why not. Government can resort to BoG financing but not go beyond the 5 percent,” he said.

Prof. Quartey also advised that government could discuss the possibility of a BoG financing with the IMF.

“I also think it is something that government can negotiate with the IMF, since we are still under the IMF programme, it’s a cheaper way of financing the deficit rather than raising new bonds or borrowing from other sectors,” he recommended.

Also, the Head of Economics Division at the Institute of Statistical, Social and Economic Research (ISSER), Dr. Charles Ackah, says improving domestic revenue mobilization is the answer.

“We have a lot of properties scattered across the country, but the owners don’t pay property rate. Just look at how people buy lands here in Ghana without paying taxes. It is only in Ghana that people buy land for one million cedis and not pay taxes”.

He stated that government can make a lot of revenue from taxes if the right systems are put in place.

Meanwhile, the Trade Minister, Alan Kyerematen, is hopeful that lending rates in the country will go further down as government makes a conscious effort to reduce domestic borrowing.

According to him, the move is deliberate to ensure businesses get cheaper funds to invest into their operations.

The Central Bank has also revealed that lending rates have begun dropping marginally after the Policy Rate was cut by some 450 bases points this year.

Currently the policy rate stands at 21 percent. The industry average lending rates for loans and advances, as at the end of March, dropped to 26.7 percent from February’s rate of 26.9 percent.

Speaking at the SMEs CEO Summit, Mr. Kyerematen said more will be done to help SMEs get cheap funds.

“We are also aware that government’s proactive effort to reduce borrowing in the domestic market is going to be a major catalyst for reducing cost of capital. When government has a large appetite to borrow from the domestic market… it doesn’t only crowd out, the private sector banks also respond to that high appetite by increasing their interest rate,” he stated.