By: Edzorna Francis Mensah
Parliament has adopted the report by the Finance Committee to approve the Loan Facility Agreement Between the Government of the Republic of Ghana (Represented by the Ministry of Finance), and African Export-Import Bank (Afreximbank) for an amount of up to seven hundred and fifty million United States dollars ($750,000,000.00).
The facility is to Finance Capital and Growth Related Expenditures in the 2022 Budget which was presented to the House on Thursday 16th June, 2022 in accordance with Article 181 of the 1992 Constitution of the Republic of Ghana and Section 56 of the Public Financial Management Act, 2016, Act 921.
Government has disclosed that, the loan will serve as the credit facility to finance critical flagship projects of the state under the 2022 budget and this “arrangement has become neccessary because if the decision by government not use the capital market to raise financing until the market conditions improved”.
The report further indicated that, “the Central Bank may be exhausted in few months if urgent steps are not taken to shore up the countries reserves”.
The Minister further indicated that, there is the urgent need for the Government to secure the US$750 million facility to help shore up the reserve position of the Bank of Ghana to avoid the country defaulting on its international commitments and also to avoid the country moving into insolvency.
The Minister explained that, the facility may seem expensive on face of its terms but is a reflection of market overall conditions in Africa as evidenced by the cost at which many African countries borrow from the international market.
In presenting the committees’ report on Debt Sustainability and IMF Support, the chairman of the Committee, Kwaku Kwarteng expressed worry about the impact of the facility on the countries debt sustainability levels which could deprive the country from benefiting from an IMF program since IMF, as a policy, does not lend to countries with Unsustainable debt levels.
On the other hand, Minister as captured in the report explained that “Ghana opted for an IMF program because of the increasing debt levels”.
He further submitted to the Committee that, a program with the Fund will help , improve the country revenue generation and restructure the country’s debt to avoid default.
The Minister informed the Committee that “the debt distress position of Ghana is consistent with the challenges confronting many African countries where the average debt to GDP levels has risen from an average of 60% to 70% across the continent.
The Minister was confident that a program with the IMF will help restructure the country’s debt and improve revenue generation to bring the nationals debt to sustainable levels”.
The cost per project to be financed under this facility totally Seven Hundred and Fifty Million United States Dollars (US$750,000,000) are as follows:
1. Ofankor-Nsawam Road 200,000,000
2. Ejisu-Konongo Road 75,000,000
3 Completion of Nsawam Apedwa Road Project 10,000,000
4 Suame Interchange and Local Road Network 47,000,000
5. Completion of Flower Pot Interchange, Legon 35,000,000 Accra
6. Completion of Sofoline Interchange 35,000,000
7. Construction of Kwabenya—Peduase Road Project – 10,000,000 -GoG Counterpart Funding
8. Completion of Eastern Corridor Lots 5 and 6 – 70,000,000
9. Completion of Enkyikrom—Adawso Road Project – 98,000.000
10. Purchase of Rolling Stock and Seare part – 30,000,000
11. Construction of Stadia Infrastructure for all African Games – 140,000,000
Background
The Government had expressed its intentions in the 2022 Budget Statement and Economic Policy of Government to raise up to the Ghana Cedi equivalent of US$750.00 million under a syndicated term loan facility arrangement to support the implementation of the 2022 Budget.
The loan syndication approach was chosen following Government’s announcement that no Eurobond would be issued in 2022 under the International Capital Market Programme (ICMP) until market conditions improve.
This approach was necessitated because, at the time of the 2022 Budget approval, the spread of the new COVID-19 variants had led to the re-imposition of restrictions worldwide coupled with incidences of energy price increases and supply side disruptions thereby limiting access to the international capital market.
Additionally, the global economy, according to the IMF was in a weaker position than previously anticipated as a result of the emergence of new COVID-19 variants. Further supply chain disruptions, crude oil price hikes, rising global inflation and geopolitical risks in the Ukraine/Russia war has affected growth and financing conditions.
As a response to these global economic challenges, Central Banks of the major world economies responded by raising interest rates to control the increasing levels of inflation in their economies.
Other Central Banks have indicated their intention to hike rates to combat global elevation in inflation. Consequently, non-resident investors in Ghana’s domestic bond market are pulling out of the country.
From a high of 35% share of holdings in domestic bonds, the proportion of non-resident bond holders has declined to 16% as at end of December, 2021.
A further reduction to 15% has been experienced as the end of March, 2022.
