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Govt. considers euro bonds

By Kofi Ahovi
The government is considering sourcing for capital on the international market to finance the country’s fiscal deficits.

It is however unclear how much the government would seek on the international market as it is yet to agree on the modalities, but sources at the Ministry of Finance and Economic Planning (MOFEP) say it would be around US$300 million.

On a broad coverage basis, data on the 2009 budget indicate that government fiscal operations resulted in a deficit of GH¢2.1 billion 9.9% of Gross Domestic Product (GDP) compared with GH¢2.6 billion 14.5% of GDP for the same period in 2008.
For the first three months of this year, government fiscal operations resulted in a narrow deficit of GH¢1.1 billion 4.2% of GDP compared with GH¢100 million 0.6% of GDP for the first quarter of 2009. The fast paced growth of expenditures observed in the first quarter of 2010 was driven mainly by the clearance of road and non-road arrears and part settlement of Tema Oil Refinery’s (TOR) indebtedness to Ghana Commercial Bank (GCB) all totaling some GH¢700 million 2.8% of GDP.
Expenditure management, though, has been very rigorous, payment of high domestic interest, judgment debts, as well as, the projected shortfalls in revenues and grants, are expected to result in an overall end-year budget deficit of GH¢2,213.3 million, equivalent to 10.2% of GDP by the end of this year.

Government plans to finance the deficit from both foreign and domestic sources. Foreign financing is projected at GH¢905.3 million, equivalent to 4.2% of GDP. As a result of the projected increase in the overall budget deficit, domestic financing of the budget is expected to be higher than the projection in the 2009 budget.

Consequently, the net domestic financing of the budget for the whole year is projected at GH¢1,304.4 million, 26.3% higher than the 2009 budget estimate of GH¢1,032.8 million.

Ghana went to the international market in September 2007, for the first time, to raise funds through sovereign bond. The US$750 million bond was oversubscribed by over 400%, amounting to US$3.7 billion.

As a result of the country’s success in launching the bond, Ghana was awarded two awards – the 2007 Emerging Market Bond of the Year and the Eastern Europe, Middle East and Africa (EEMEA) Bond of the Year- on January by the International Finance Review at its 13th Gala Dinner in London, United Kingdom.
It was the then government’s intention to use the proceeds from the Eurobond to finance projects that would yield profits to enable the country pay back in time. The projects included the construction of major highways on which tolls would be collected towards repayment of the facility.

The Minister of Finance, Dr. Kwabena Duffuor, announced government’s decision to create a special fund in which it will save to pay interest on the Eurobond and the $750 million principal which is due for repayment in 2017, but experts believe the country’s finances could seriously be affected by repayment for the non-concessional commercial loan.

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