Former Finance Minister, Mr Seth Terkper, has indicated that Ghana’s economy may collapse, if the government does not consider prudent measures to salvage the situation.
According to him, based on the assessments of Blomberg and Fitch, there’s sufficient evidence to suggest that Ghana’s economy under the management of Ken Ofori-Atta, the Finance Minister is not in a fine shape. Therefore the government must roll out swift interventions to avert a possible collapse of the country’s economy.
But John Kumah, Deputy Finance Minister, rebutted that the government would not be seeking financial assistance from the international market to manage the economy this year and insisted that the government has put in place measures to cater for its expenditure without relying on the international market for assistance.
Aside from raising revenue domestically, the Deputy Minister, said government has put aside $750million out of $1billion it received from the International Monetary Fund (IMF) as Ghana’s Special Drawing Right (SDR), adding that is approximately the amount needed by the Akufo-Addo led government to meet its target expenditure for 2022.
Mr Terkper, had insisted that “we’re gradually going, and we have gone HIPC before. So HIPC is a good example for us. That is if your borrowing becomes unsustainable,” he said.
Commenting on the state of the economy, Mr Tekper added that the government’s claims that Ghana is a sovereign country, must tally with the country’s ability to thrive on its own.
He made these remarks while contributing to discussions on the state of the economy on NewsFile on Saturday.
“The keyword there is sovereign rights, which we’re also exercising in not going to the IMF. Yes you have sovereign rights, okay, but you’re not able to finance your budget. So what is that sovereign right? Now you have your sovereign rights to do education. You have your sovereign rights to do all your government programmes. But are you able you able to finance it yourself?” Mr Terkper quizzed.
The former Finance Minister, said government has reduced its rate of borrowing at the external market due to challenges it may face in receiving loans, because the trust that Ghana will be able to pay back loans it goes for is being lost as a result of the country’s inability to cater for previous loans.
This, he said, led Bloomberg to warn the government that it is moving deeper into distressed territory as investors judge that re-financing debt in the Eurobond market won’t be an option when the Federal Reserve hikes rates and budget targets remain elusive.
Mr Terkper explained: “You are borrowing. Is your market able to give you the money you need? Your market is small. If you look at the budget, the financing system, you will see that the rate at which we are borrowing, government itself has lowered it. So the government is anticipating that it will have difficulty going to the external market.
Bloomberg is warning us that apart from the difficulty you have now, we all know that we are using all our tax revenue to basically pay compensation, the interest on previous loans. What this means is that the loan we borrowed previously, we are borrowing to refinance.”
He added: “Because our situation was deteriorating, that is how the markets interpret it, they think that you have difficulty in paying.”
For him, this solidifies why “government did not go to the market for the extra 2billon last year. We were supposed to borrow 5 billion.”
Mr Terkper, cited the Zero-coupon bond Ghana took to explain further. According to him, although the move was described as “innovative,” the “cost was expensive.”
“For 500 million of which we were to receive, we received only 350 million upfront. Which means we gave away 150 million,” he said.
A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value.
His comment comes after International ratings agency, Fitch, downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘B’ with a negative outlook.
Fitch in a report said “this comes in the context of uncertainty about the government’s ability to stabilize debt and against a backdrop of tightening global financing conditions. In our view, Ghana’s ability to deliver on planned fiscal consolidation efforts could be hindered by the heavier reliance on domestic debt issuance with higher interest costs, in the context of an already exceptionally high-interest expenditure to revenue ratio.”
Assuming Ghana issues a $500 million zero-coupon bond at a discounted rate of 20% ($100 million) Ghana will receive $400 million in cash today but pay back $500 million when the bond matures in 4 years.
In the interim, however, Ghana will not pay any interest over the 4 years. This means the government can use the money it would have used to pay interest over the next 4 years for something else. In the case of Ghana for this bond, the government has indicated the intention of using the proceeds to refinance more expensive domestic debt attracting 19% interest.
So Ghana is borrowing at no interest and using the proceeds to pay existing debt with higher/expensive interest rates.
His comments tie into an earlier projection by an economist with the University of Ghana Business School (UGBS), Prof. Godfred Alufar Bokpin.
Speaking on the Super Morning Show on Monday, Professor Bokpin, said Ghana risks an economic collapse. According to him, as the country’s debt stock hits high distress levels, the current debt situation could get worse by the end of September, if proper interventions are not implemented.
“When you see the proportion of the debt payment, relative to the size of the revenue envelope and you look at your rising debt and you look at the rate of economic growth and the drivers of that growth, you can reasonably predict that it’s just a matter of time that the economy will just collapse. We’re probably going to run into a little bit more difficulties towards the end of September,” he said.
Last week, independent ratings agency, Fitch, downgraded Ghana’s creditworthiness from a B to a B minus, with a projected 83percent debt-to-GDP for the year ending December, 2021.
Fitch in their report noted that, “Government’s ability to deliver unplanned fiscal consolidation effort could be hindered by the heavy reliance on domestic debt issuance with higher interest cost in the context of an already exceptionally high-interest expenditure to revenue ratio.”
But reacting to this on NewsFile, Mr Kumah, strongly disagreed with Fitch’s ratings, stating that in 2017 the country sought no assistance from the international market to meet its expenditure target.
“That is where we disagree with Bloomberg, Fitch and some of these rating agencies. It appears that if Ghana says that we are not going to the international market, then we don’t have an alternative to finance our expenditure in this country. This is not the first time Ghana has not gone on the market. In 2017, Ghana didn’t go on the market and yet we met our expenditure target and revenues. They have their doubts but one year is not far away. Just like they doubted us in 2021, we delivered”.
The Deputy Finance Minister, emphasised that “an economy growing above 5 per cent in COVID and meeting its revenue target cannot be said to be having a negative outlook. I believe that if this is the basis of concern for them to be rating us at the levels that they are doing, we are very surprised”, he added.
He also assured the public that the Akufo-Addo government, will continue to manage the economy in the best interest of its citizens.
“We are all entitled to disagree but I want to assure the country that irrespective of other people’s lack of confidence in us, we have strong confidence in our ability to deliver the best and manage the economic affairs of Ghana in the best of means possible. All the targets we have set for 2022 shall be met by the grace of God”, he stated.
“In 2022, government is looking more within to raise the financing. The good news for Ghana is that the IMF gave Ghana Special Drawing Right (SDR) of $1billion dollars and we spent $250 million of that in last year’s budget. We still have $750million sitting in Ghana.
So we don’t have to go out to the market to borrow. We have factored that and all the external financing we are looking at is just about $750 million for us to be able to achieve the expenditure target for 2022.
We think that we have enough capacity within our domestic market to be able to raise enough financing to achieve the budget target.”
His comment comes as a response to concerns by citizens after International rating agency, Fitch, downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B‘ from ‘B-’ with a negative outlook.
Fitch in their report noted that, “Government’s ability to deliver unplanned fiscal consolidation effort could be hindered by the heavy reliance on domestic debt issuance with higher interest cost in the context of an already exceptionally high-interest expenditure to revenue ratio.”
Mr Kumah, disagreed with the agency’s findings as the country in 2017, sought no assistance from the international market to meet its expenditure target.
“That is where we disagree with Bloomberg, Fitch and some of these rating agencies. It appears that if Ghana says that we are not going to the international market, then we don’t have an alternative to finance our expenditure in this country.
This is not the first time Ghana has not gone on the market. In 2017, Ghana didn’t go on the market and yet we met our expenditure target and revenues. They have their doubts but one year is not far away. Just like they doubted us in 2021, we delivered.”
The Deputy Finance Minister emphasised that “an economy growing above 5 per cent in Covid and meeting its revenue target cannot be said to be having a negative outlook.”
“I believe that if this is the basis of concern for them to be rating us at the levels that they are doing, we are very surprised,” he added.
Meanwhile, John Kumah, who is also the MP for Ejisu, has assured the public that the government will continue to manage the economy in the best interest of its citizens.
“We are all entitled to disagree but I want to assure the country that irrespective of other people’s lack of confidence in us, we have strong confidence in our ability to deliver the best and manage the economic affairs of Ghana in the best of means possible. All the targets we have set for 2022 shall be met by the grace of God,” he stated.
