Ignore NDC’s Lies And Propaganda On Eurobond – John Kumah To Ghanaians

Deputy Minister of Finance, Dr. John Ampontuah Kumah has urged Ghanaians to ignore the news-making rounds on social media platforms by the opposition National Democratic Congress (NDC) concerning Eurobond.

In a post on Facebook to set the record straight, Dr. John Kumah who doubles as the MP for the Ejisu constituency, said the NDC lied in its claims that the government has borrowed US$13.5 billion.

“Indeed, the NDC lied when they said this administration had borrowed US$13.5 billion instead of US$11.25billion from the 4 issuances since 2018,” he wrote.

He explained, “this lazy approach to discussions on important matters such as International Capital Market (ICM) activity is disturbing and unwarranted.”

Read his full post below:

The notion being pushed which is nothing but propaganda to show Ghanaians that the Nana Addo government has borrowed more is myopia, weak on substance and merit. Equally important is the need to reiterate that the Eurobond market is only open to countries with sound macro fundamentals. From that perspective, the NDC in the eight years (2009-2016) could not have gone to the ICM because the fundamentals were not strong as they were in 2017 onward when the NPP came to power. Indeed, the NDC 2014 had to jettison the offers they received from the market because the pricing wasn’t right only to return at a later date when the conditions were much better.

The NDC at that time knew that the Eurobond presented a good mix and was credible alternative financing for Government. To turn around and insinuate the ICM activities of this government is nothing but propaganda.

Now, let me help my friends- the NDC- to appreciate what financing options government considers each fiscal year and explain the major drivers of the Government’s Eurobond activity since its inception in 2007.

1. Deficit financing – when Government considers each year its estimated revenues and expenditures each, the gap (deficit) that arises is catered for through debt financing (domestic and external sources). The consideration for any of the deficit financing mix must at all times satisfy the cost-risk balance. This means, that each year, the government through its Debt Sustainability Analysis (DSA) and the medium-term debt strategy, determines which financing mix optimizes greater benefit to the country.

When the NPP came to power, it focused its financing needs from external sources since it was relatively cheaper to do so at that time. Also, externally biased financing allowed the local banks to lend to the private sector thereby reducing the crowding-out syndrome the government inherited in 2017.

Again the government borrowed more externally to finance the deficit because the cost of borrowing domestically was extremely high given the interest rates that prevailed at the time. When the government was able to bring domestic rates down, it shifted the deficit financing to domestic as was the case in the 2021 budget. So, an increase in ICM activity is nothing but a financing strategy the government came out with to mitigate cost risk on the debt portfolio.

2. Utilisation of Eurobond Proceeds- the Eurobonds also have a prospectus and through that government demonstrates to investors what it intends to use the ICM resources for. Apart from budget support, liability management has always been a big part of the Eurobond utilization plan. The government always buy-back expensive bonds from previous issuances.

Maybe, the NDC needs to look back to understand the interest that the bonds they issued for which this government has bought-back significant portions issued? Let me remind them a bit. Indeed, the 2015 bond that even had a partial risk guarantee from the World Bank issued by the NDC at a coupon of 10.75% is still the most expensive bond ever issued by Ghana.

The government had to pay more interest because of the high rates at which the bonds were issued including the 2016 bond also issued at 9.25% by the NDC. This is the legacy of the NDC.

This government through its Eurobond activities has tried to clean the mess created by the NDC through the active and passive liability management program on both domestic and external bonds.

3. Cost of yearly coupon (Interest Payments on Eurobond) – the most critical issue when discussing Eurobond is the coupon paid each year for each issuance. In other words, how much interest is paid each year for each bond issued?

Because the repayments of most of the bonds issued by Ghana are bullet payments, one has to focus always on the interest cost to appreciate whether there was value for money. If our friends were a bit thorough, they will have seen that the government has paid more in coupons for bonds the NDC issued. By 2008, the annual coupon paid to holders of Ghana’s bond was equivalent to GHS80.0 million. By 2016 and with only 5 issuances of a size of US$4.5billion and outstanding stock of US$2.36 billion, Ghana paid to investors the equivalent of GHS1.6 billion as coupons.

The high-interest rate of the bonds accounted for the high coupon government paid at the time. As of 2021, with 9 issuances of a cumulative size of US$15.75 billion, and outstanding stock of US$13.35 billion, the coupon paid was GHS5.6 billion of which the exchange rate effect was quite high.

Certainly, the impression the NDC seeks to portray is inaccurate and lacks merit. These ICM resources have helped the government in providing some of the critical infrastructures in the country.

We mustn’t be seen to be peddling false information as such things have serious repercussions for Ghana’s future Eurobond issuance.