By Elorm Desewu
The government has announced debt ceilings strategy for next year in attempt to stem the rising public debt.
Ghana’s total public debt has reached GHC204 billion this year. This has pushed the government to put a ceiling on non-concessional borrowing for the medium-term at an annual limit of US$750 million for both 2020 and the medium-term and maintain a concessionality test of a minimum 35 percent grant element.
As part of the debt ceiling strategies, the government would keep a debt-to-GDP ratio below 60 percent threshold over the medium-term. This is to ensure that the country does not breach the levels on sustainable basis.
The main objective of the debt strategy is to finance the budget deficit at the least possible cost and at a prudent level of risk.
Based on the current macroeconomic framework, the recent MTDS analysed four strategies, which is also in line with the Medium-Term Fiscal Framework.
Common to all the strategies is the continuous issuance of more medium-term bonds (3-year and 5-year) in all the years of the strategy period, as well as issuance of domestic debt to fund the financial sector bailout in 2019 and 2020.
All four strategies also assume the creation of a cash buffer of up to Gh¢1 billion in 2019 on top of the programmed net financing for active liability management and the timely servicing of Government debt obligations.
Furthermore, all four strategies assume the issuance of a 3-year US Dollar denominated bond in 2019 of an amount up to US$250 million, without a refinancing of the maturing one in 2020 as it is an election year.
The debt strategy is intented to diversify the investor base and currency structure. It also seeks to continue the ongoing liability management programme to manage the risks embedded in the public debt portfolio and develop the domestic debt market.
As part of the strategy to diversify the investor base, the government will explore the possibility of issuing new financing instruments such as Century bond, Green bond, Samurai bond, and Panda bond, among others.
The Strategy assumes a sovereign bond issue of US$3 billion on the ICM. It also assumes a sovereign bond issuance of US$1.5 billion in 2021, as well as increased inflows of about US$550 million in external commercial debt in 2020.
The Strategy envisions the possible issuance of domestic debt of up to GH¢4 billion to fund a financial sector bailout in 2019, as well as the creation of a cash buffer of up to GH¢1 billion annually for active liability management operations. In addition, the chosen strategy assumes the issuance of a 3-year US Dollar denominated bond in 2019 of an amount up to US$250 million.
Strategic benchmarks set out in the MTDS is aimed at monitoring and ultimately reducing foreign currency risk, interest rate risk, and refinancing risk embedded in the public debt portfolio.