Tells Parliament’s Finance Committee foreign reserve has been depleted from $9bn to $3bn
A report by the Finance Committee of Parliament has revealed the precarious state of the country’s finances as well as confessions of the Achimota School and Yale University-trained Finance Minister that the country could soon go bankrupt, adding that Ghana’s foreign reserve has been depleted.
According to portions of the report by the Finance Committee on Loan Facility Agreement between the government of Ghana and the AfreximBank for a loan of up to $750 million, the country would have gone bankrupt without approval of this loan amount.
The Committee’s report quoted by Accra-based Joy FM further stated that the Bank of Ghana’s foreign reserves is dwindling and has moved from $9 billion to about $3 billion.
Ken Ofori-Atta, “indicated that Ghana has over the past recent years accessed financing from the International Capital market and domestic bond market to support the implementation of its budget.
“However, the international capital market is not available to Ghana this year as a result of the downgrade of the country’s credit rating by international rating agencies.
“The Government’s intention to raise funds from the domestic bond markets did not also yield the desired result. Consequently, the economy is presently challenged with rising inflation, rising interest rates, exchange rate depreciation and increasing energy cost”.
“These challenges are further exacerbated by the rapidly dwindling reserves of the Bank of Ghana which has declined from $9 billion to about $3 billion. With a monthly demand of over $600 million, the reserves of the central bank may be exhausted in a few months if urgent steps are not taken to shore up the country’s reserves.”
According to the committee report which has been laid in Parliament and adopted by the House, the Finance Minister Ken Ofori-Atta explained to MPs that the country needed this loan amount to shore up the reserve position of the Central Bank.
“The Minister further indicated that, there is an urgent need for the government to secure the $750 million facility to help shore up the reserve position of the Bank of Ghana to avoid the country defaulting on its international commitments and also to avoid the country moving into insolvency.”
The Minister said despite the facility seeming expensive in its face, it’s a reflection of the overall market conditions.
The report mentions 11 projects the loan amount will be used to finance including the Ofankor – Nsawam road, the Suame Interchange and local road network project as well as the completion of the flower pot interchange.
Parliament has since approved the loan agreement between the government of Ghana and the African Export-Import Bank (AfreximBank).
One Wednesday, despite a last-minute attempt to arrest the motion on grounds of lack of quorum, Parliament approved a $750 million loan agreement with the Afrexim Bank for funding infrastructure projects and budget support.
The loan is part of a $1 billion dollar facility, the government is seeking to shore up its reserves as well as to pay for several infrastructure projects across the country.
The Minority previously opposed the loan agreement, but threw its weight behind it during the debate to avert what they call a collapse of the country’s economy if the loan is not approved.
The Chairman of the Finance Committee, Kwaku Kwarteng moved the motion while the Ranking Member on the Committee, Dr Cassiel Ato-Forson, during his contribution indicated government has not built the necessary financial buffers to pay back the loan.
The Government had expressed its intentions in the 2022 Budget Statement and Economic Policy of Government to raise up to the Ghana Cedi equivalent of $750 million under a syndicated term loan facility arrangement to support the implementation of the 2022 Budget.
The loan syndication approach was chosen following Government’s announcement that no Eurobond would be issued in 2022 under the International Capital Market Programme (ICMP) until market conditions improve.
This approach was necessitated because, at the time of the 2022 Budget approval, the spread of the new COVID-19 variants had led to the re-imposition of restrictions worldwide coupled with incidences of energy price increases and supply side disruptions, thereby limiting access to the international capital market.
According to the Finance Committee of Parliament, the government intends to secure the credit facility to finance critical flagship projects under the 2022 Budget.
This arrangement was necessary because of the decision by Government not to use the capital market to raise financing until market conditions improve.
Additionally, the increasing withdrawal of non-resident investors in Ghana’s domestic bond market with implications for the level of reserves of the Bank of Ghana and foreign exchange management generally requires the injection of additional foreign currency to shore up reserves.
Portions of the alarming report under a subheading “Importance of the facility” said that “The Hon. Minister of Finance explained to the Committee that the approval of the facility is urgently needed to avoid the country going bankrupt and help the country meet its obligations.
He indicated that Ghana has over the past recent years accessed financing from the International Capital market and domestic bond market to support the implementation of its budget.
However, the international capital market is not available to Ghana this year as a result of the downgrade of the country’s credit rating by international rating agencies.
The Government’s intention to raise funds from the domestic bond markets did not also yield the desired result.
Consequently, the economy is presently challenged with rising inflation, rising interest rates, exchange rate depreciation and increasing energy cost.
These challenges are further exacerbated by the rapidly dwindling reserves of the Bank of Ghana which has declined from US$9bn to about US$3bn. With a monthly demand of over US$600 million, the reserve of the central bank may be exhausted in few months if urgent steps are not taken to shore up the country’s reserves.
The Minister further indicated that, there is the urgent need for the Government to secure the US$750 million facility to help shore up the reserve position of the Bank of Ghana to avoid the country defaulting on its international commitments and also avoid the country moving into insolvency.
The Minister explained that, the facility may seem expensive on the face of its terms but is a reflection of market overall conditions in Africa as evidenced by the cost at which many African countries borrow from the international market.
