¢500m 5 year bond is necessary to tame budget deficit – Dr. Bokpin

Economist, Dr. Godfred Bokpin has described as necessary, government’s decision to issue a 500 million 5 year fixed rate bond this month.

He tells Citi Business News the move will enable government meet the funding gap which has contributed to the country’s budget deficit.

Figures released by the Finance Ministry show that the country’s budget deficit has reduced from 11.5 percent to 7 percent between 2012 and 2015.

A situation some analysts have attributed to the increased government’s expenditure compared to revenues.

An issuance calendar released by the Ministry of Finance indicated that government intends to borrow about 6 million cedis for the first half of the year through bonds, treasury bills and notes.

Though Dr. Bokpin believes the move is likely to crowd out the private sector in accessing credit, he maintains government has no other option than to go ahead as it will be able to pay outstanding debts that continue to impact on the economy,

“The implications are quite clear, government is competing for credit with the private sector in the same market, and chances are that the private sector will be crowded out. What is important is to make sure that this borrowing does not exceed the funding gap, once they are within the budget, then that has to be accommodated largely,” he observed.

“Already the market is quite tight and if government is asking economic agents to trade off consumption for five years, then chances are that they must be paying something higher to reflect the maturity of the security,” Dr. Bokpin added.

By: Pius Amihere Eduku/citifmonline.com/Ghana