Halt US$50bn century bond issuance now…..IFS cautions gov’t

Adnan Adams Mohammed

An economic policy think-tank, Institute for Fiscal Studies (IFS) has urged the government to wait until the country’s fiscal consolidation and macroeconomic stability have gained strong ground and the volatile local currency, the cedi, has strengthened against the international currencies, before going ahead with the issuance of its planned US$50 billion century bond.

The bond in question is said to be the world’s biggest sovereign 100-year dollar-denominated debt to be issued at a time when emerging market dollar-bond sales are dwindling, as rising U.S interest rates are dampening appetite for high-yielding assets.

According to IFS, the average yields on emerging market dollar debt have also climbed almost 100 basis points since April 2018, amid a sell-off sparked by the recent crises in Argentina and Turkey.

The policy think-tank, therefore believes that, government’s consideration of issuing a century bond soon, to finance infrastructure development, is ill-advised and could be suicidal for the economy as long as domestic revenue mobilisation continue to underperform.

“Even then, a US$50billion century bond would be too much for a country with a GDP of under US$60billion; and would be a dangerous experiment that could harm future generations,” it added.

IFS in its assessment of the bond, stated that already close to 50 percent of all revenue mobilised domestically is used to make interest payments on loans; and given that domestic revenue mobilisation has been below par for the past five years, the century bond could bring more harm than good.

“A US$50billion century bond with interest of say 5 percent per annum is not the solution, as this will translate to a debt-servicing cost of US$2.5billion per annum, or US$250billion in 100 years.

“Another issue is whether government can generate enough domestic revenue to support the debt-servicing and repayment costs of the US$50billion century bond being contemplated. It is indeed a serious failure on the part of the country that anytime it needs money to finance capital projects it has to resort to borrowing rather than relying on raising revenue,” the IFS said.

The Minister of Finance, Ken Ofori-Atta, is expected to announce the issuance of a US$50billion century bond that will provide resources to help address major challenges confronting the country: including cedi-depreciation, infrastructural deficit, and low industrial development.

But the fiscal policy institute argued that, while it is necessary to explore various sources of funding to address Ghana’s huge infrastructure gap and developmental challenges, a 100-year bond is ill-advised – especially looking at the servicing costs and the lack of a widely-accepted national development plan.

“It would, in fact, be suicidal for the country to go for such a colossal bond that lasts for 100 years without a blueprint that carefully outlines the country’s development priorities and how the funds would be used to add value to its vast resources.

“Without such a blueprint, public confidence and support for a century bond will be low, as this would create a huge debt overhang that could be disastrous for the country. The decision to issue a bond of this size and for such a long period must therefore be driven by a long-term national development plan that has received the blessing of all Ghanaians,” the policy think-tank advised.