Adnan Adams Mohammed
A finance expert has backed the call by a former finance minister, Professor Kwesi Botchwey, on government to rebuild sinking funds to help in repayment of the country’s maturing Eurobond loans.
The former Executive Director at Standard Chartered Bank, Alex Mould has said, currently the country is practising “cash accounting”, that is, “we pay as we go”. This is ok for steady payments but not good for intermittent large payments like EuroBond principal repayments.
Ghana’s longest serving Finance Minister during a lecture on the economy at University of Ghana yesterday, March 7, 2022, cautioned current government to desist from collateralizing public revenue schemes among other policies that would further mortgage the future of the young generation. Noting that, for example, whoever takes the reins of government in 2025 will have to shed a whopping $1.5 billion in Eurobond principal payment within months of assuming office.
“If we don’t rebuild sinking fund and we are unable to access international capital market to refinance our Eurobonds, then this could mean that the next government may default in its maturity Eurobond obligations in 2025”, Professor Botchwey said.
Consequently, Mr Mould in his reaction to Prof Botchwey’s lecture affirmed that, “most governments don’t worry about the principal repayment because all they do is refinance it in the market that the bonds were originally issued.”
The finance expert further noted that; in light of the country’s current economic predicament, “the Capital markets will be closed to us for a few years while we restore confidence in the inveators and get our credit rating up to levels that do not exclude some qualified investors from holding junk paper; and also, unless we are prepared to pay 13-14% interest rate,which is absurd and abnormal.
“So we won’t go to refinance the chunk of debt maturing in 2025 in the Capital markets, and that’s why we have no other alternative than to rely on our bilateral and other financing from local banks, and also the reason we need to allocate some of our forex earnings from exports and remittances.”
Mr Mould explained, “What this means is that, the forex available to market players will be reduced as we have we have to put some aside for the repayment of the principal that will become due especially in 2025.
“And remember we shall have to buy this forex using cedis so government will be borrowing more cedis in the local capital markets and this will increase interest rates and also the exchange rate for Forex.”
Meanwhile, Prof Botchwey, who proposed a number of wide-ranging measures to address the economic challenges confronting the country, said the current macro economic indicators, including the country’s debt to GDP ratio, inflation rate, drop in creditworthiness rankings, fast depreciation of the cedi against the US dollar, the rising cost of fuel among other indicators pointed to the fact that the nation was in economic crisis.
“The crisis is here and if it is not resolved, it will lead to a catastrophe.” Prof. Botchwey, who served as Finance Secretary in the Military led Provisional National Defence Council (PNDC) Era as well as the Finance Minister during the National Democratic Congress civilian rule, all under late Jerry John Rawlings, said.