Government May Look To BoG For Financial Support – Report

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The government could look to the Bank of Ghana for funding if it fails to enter the international capital market next year to issue a Eurobond, an international research institution, REDD Intelligence said.

This is happening despite the fact that the Governor of the Bank of Ghana, Dr Ernest Addison, has ruled out granting new loans to the government to help reduce the budget deficit, saying it would endanger the stability of the exchange rate.

At the height of the Covid-19 pandemic, the Bank of Ghana loaned 10 billion yen to the government to mitigate the impact of the coronavirus pandemic on the economy.

But REDD Intelligence says the lack of Eurobond funding raises the question of what other sources of funding are available for the government to finance the budget deficit and upcoming debt maturities.

“The lack of Eurobond funding raises the question of what other sources of funding are available to the government to finance the deficit and the upcoming debt maturities. The government frequently turned to the Bank of Ghana (BoG) for financing when sufficient funds were not available from other creditors, especially from August to December of last year.

The central bank, according to REDD Intelligence, said in September 2021 that it had an agreement with the finance ministry that a third of the $ 1 billion special drawing rights from the International Monetary Fund would be returned to the government.

To this end, REDD Intelligence said the governor has asked the central bank’s research department to make the necessary adjustments and not to classify this type of funding as central bank funding because of the source of funding.

“Finance Minister Ken Ofori Atta previously said the government would withdraw the entire SDR allocation to support the economy by directing funds to sectors that will help create jobs, as well as certain areas under the Ghana Cares economic stimulus program. However, the political opposition, including former finance minister Seth Terkper, argued that the government must seek appropriate parliamentary approval to appropriate SDR funds. This is in line with official IMF advice, ”he said.

He further added that “Ghana’s parliament has been suspended since the December 2020 elections, but parliamentary approval is unlikely to be a major obstacle for the government to receive funding from the BoG in one form or another.”

Foreign investors keep a close eye on Ghana’s Eurobond

Meanwhile, foreign investors, both in Ghana’s Eurobonds and its local currency debt, will no doubt keep a close eye on how the government handles the funding crunch in the last quarter of this year. year.

“While Eurobond holders seemed oblivious to the sharp rise in Ghana’s domestic debt as it recovered in global financial markets in the second half of 2021, Zambia’s demand for debt restructuring under of the G20 and the subsequent large influx of local currency debt for countries at risk of debt restructuring.

REDD Intelligence has, however, pointed out that the Ghanaian government is still likely to postpone debt restructuring until the next elections, scheduled for December 2024, with Eurobond maturities largely inconsequential (the $ 253 million still in circulation). of 7.875% 2023 of $ 1 billion) until the mid-year of 2025.

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