Business News of Wednesday, 23 December 2015
The Minority says poor economic management by government is the reason it opposed attempts to borrow one billion dollars from the international market Tuesday.
New Patriotic Party (NPP) Member of Parliament for Obuasi West, Kweku Kwarteng, says the Minority MPs have decided to remove themselves from unwarranted government borrowing, characterized by excessive domestic loans.
“What government does is that it borrows to finance recurrent expenditure and the way it does this is that it goes to the domestic market to borrow short-term instruments – short term bonds, treasury bills. That kind of borrowing government does without going to Parliament.
“When it is time to repay, then government comes to Parliament and then says ‘now give me the chance to borrow properly to finance those short-term instruments,’” Kwaku Kwarteng, who is on Parliament’s Select Committee on Finance, said on the Joy FM’s Super Morning Show, Wednesday.
He notes even more worrying is that a huge chunk of the loans secured is used for consumption, creating more debt for the country.
“When you look at the portions of those borrowings that are going into capital expenditure in 2014 for instance, it was 22%, so as a country we are borrowing to consume. How are you going to pay back when you borrow not to invest in infrastructure and to expand your economy but you borrow to consume?” he asked.
In a rare outcome in Parliament on Tuesday, the Minority won a vote to stop government from securing approval for a sovereign guarantee on one billion dollar Eurobond.
Sixty-seven Members of Parliament (MPs) voted against the motion, whilst 66 voted in favour.
A head count to establish the number of legislators voting in favour or against approval of the Eurobond became necessary after a voice vote proved impossible to determine whether the motion had been approved or not.
However in a dramatic turn, Ebo Barton-Odro, First Deputy Speaker, announced that the number of Parliamentarians present in the House, i.e. 133, does not meet the requirement to take a decision on a matter.
The motion has been tabled for debate in Parliament Wednesday but Kwaku Kwarteng says the Minority’s position remains the same – they will not support the motion.
The Obuasi West MP also said ballooning interest payments on existing loans is another problem the current administration is bequeathing to posterity.
The country is expected to pay 10.5 billion Ghana cedis in interest payment on existing loans by 2016, he revealed.
The MP said another reason the Minority did not pass the one billion Eurobond is because the Finance Minister was silent about the interest on it.
“Finance Minister did not tell us at what interest rate government intends to borrow. I am reading that if we went to the market now we probably would be doing 12 or 13 per cent which is unprecedented in Africa,” he said.
Government borrowed at 10.75% in the last Eurobonds issue in October this year which is spread over 15 years, a figure analysts say was the highest in Africa at the time.
Minority is disappointing
The Finance Minister, however, says he is disappointed in the Minority’s position on the absence of the interest rate in the motion he presented to Parliament.
“Nobody is able to tell, when you are going to float a bond on the international capital market, what rate you’ll get, not even the analysts in the US Treasury, not even the US Fed will be able to tell you what you are going to get”, Seth Terkper said on the Super Morning Show.
He also explained that the last Eurobond at 10.75% was for a longer tenure.
“You cannot compare a 10-year bond with a 15-year bond because we have a long tenure,” he said.
Although it may come at a higher cost, the longer tenure makes it a good deal.
“You don’t just look at interest rate in making your decision when you are in the financial market,” the Finance Minister said.
He explained that the entire one billion dollar Eurobond waiting for Parliamentary approval would be for refinancing Ghana’s short-term debts.
“We are also saying that we are moving away from the practice where we pay only interests so that we stop rolling over our bond. What that means is that if you have a longer period for repayment it is better on your debt service,” the Minister said.