Create escrow account to repay dollar denominated bond – Govt told

Government has been cautioned not to develop insatiable taste for issuing dollar denominated bond after Ghana’s first local dollar denominated bond was oversubscribed yesterday.

Government yesterday raised a total of 94.62 million dollars at a rate of 6.0 percent with a maturity term of two years.

Total bids were 99.6 million dollars but government accepted 94.62 million dollars, above its original target of 50 million dollars.

By this, the cost of the bond is lower compared to government’s last Eurobond which was issued in September this year at a coupon rate of 9.25 percent.

Finance Minister Seth Terkper had earlier explained to Citi Business News that the move is aimed at raising funds to finance the budget at cheaper rate as well as refinance more expensive domestic debt.

But speaking to Citi Business News, an Economist Dr. Eric Osei-Assibey was of the view that even though the bond was successful payment period is in the medium term, hence measures must be taken to avert undue pressure on the cedi when it matures.

“So much as it’s a welcoming development for government to look within to raise domestic bond in dollar denominated, we still have to be careful so that we don’t over indulge in it because a 6 percent rate for a two year bond will soon mature and if by that time we haven’t been able to stabilize the currency definitely its going to put a lot of liquidity pressure,” he warned.

To prevent currency depreciation in the future, Dr. Osei-Assibey stated that measures must be taken now before the bond matures since government’s obligation to pay is in dollars.

He advised that it will be prudent to create an escrow account for the money since it cannot be accounted for if channeled through the Consolidated Fund.

“We also have to be mindful what we are using the money for. If it is going into development project, productive sectors, then off course we must ensure that we create the necessary escrow account for the repayment otherwise it is going to be put into the Consolidated Fund for recurrent expenditure then it is quite dangerous,” he said.

Govt’s loan plan

The bond is part of government’s revised time table to raise 25 billion cedis from August to December this year through bonds and treasury bills.

The announcement was a revised issuance calendar indicating government’s plan of borrow from August to December.

The report showed that about Gh¢24 billion of the funds raised will be used to clear previous bonds issued that are maturing, with the remaining going to support fresh commitments.

As part of the plans, a three-year bond will also be issued in November to raise GH¢700 million while government hopes to issue its first 10-year local bond of GH¢200 million.

According to government, the calendar aims at continuing the objective of lengthening the maturity profile by reducing short-term borrowing.

It adds that the 3, 5, and 10-year issues will be done per the calendar through the book-building method with settlement on the last Mondays of each month.

By: Lawrence Segbefia/citibusinessnews.com/Ghana

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