$1bn Eurobond Cash Missing

Dr Mahamudu Bawumia , the 2016 vice presidential candidate of the New Patriotic Party (NPP), has charged the government to list projects the $1 billion Eurobond raised on the money market had been used for, as it was not mentioned in the 2015 budget statement read last week.

Dr Bawumia believes the $1 billion Eurobond has been used to do nothing more than artificially shore up the cedi from depreciating against the major currencies.

Last September, Ghana sold a $1 billion Eurobond, five days before talks began with the International Monetary Fund (IMF) for a possible financial bailout. The finance minister said at the time that a bigger chunk of the cash raised was to develop the country’s infrastructure.

Dr Bawumia further disclosed how the government of the National Democratic Congress (NDC) had not invested Ghana’s limited foreign exchange in productive projects, but to merely stop the local currency from its free fall.

$5bn On Cedi
According to the economist and running mate to Nana Akufo-Addo, the NDC had spent over $5 billion more in six years to sustain the cedi than the NPP did in eight years, and yet the NPP did a far better job than the current government in stabilising the cedi.

Addressing a group of UK-based Ghanaian professionals at a breakfast meeting in London Saturday, Dr Bawumia, former Deputy Governor of the Bank of Ghana, disclosed, ‘We are reliably informed that the $1 billion raised from the sovereign bond has been used to reduce government’s indebtedness at the Central Bank and that the funds are not available anymore for the purpose for which it was raised.’

Dr Bawumia stressed, ‘This is sad and raises a whole lot of credibility issues. How can we borrow such a huge amount to fill a gap at the Bank of Ghana, the central bank?  Is this the use to which non-concessional borrowing should be put? This is a very serious development and the Government and the Bank of Ghana should urgently comment on it.’

Dr Bawumia recalled, ‘The Government announced to the world that it was seeking an IMF-supported programme to help address the current imbalances in the economy. On the basis of this, it was able to calm the nerves of investors and issue a $1 billion sovereign bond.’

He challenged the Finance Minister, Seth Terpker, to show to Ghanaians that he had used the $1 billion for the purpose the bond was issued.

‘In the prospectus that sought to convince investors,’ the renowned economist explained, ‘the Minister of Finance indicated that a substantial portion of the amount borrowed would be used for infrastructure development and critical projects. What projects did the Minister of Finance have in mind?’

Calling for details, Dr Bawumia stressed, ‘The Minister should list and provide a detailed plan of what projects he has in mind.’

He further disclosed, ‘In the last six years, the Bank of Ghana has spent in the range of $6.5 billion to sustain the cedi. In the eight years that we, the NPP, were in office, we spent only $1.2 billion to maintain the value of the cedi and we did relatively well to keep the cedi stable.’

Before the September bond issue, the local currency, the cedi, fell around 40 percent against the dollar between January and August, gaining ground in part because of the IMF bailout announcement and also the Eurobond.

Dr Bawumia said at the Young Executive Forum-sponsored Breakfast at the Pestana Chelsea Bridge Hotel that there was no guarantee that government could secure an IMF agreement in 2015 and that the implications could be dire, including donors withholding grants for budgetary support.

He said, ‘Turning to government’s budget statement, we see no elements of an underlying agreement on an IMF-supported framework. Are we likely to see a revised budget statement if a final deal is concluded in 2015?’

He posed a few pertinent questions, ‘Where is the financing coming from to fill the budget gap?  Are Donors likely to disburse without an IMF agreement and in the midst of corruption, especially in payroll administration?

‘Is the government planning on using parastatals like GNPC (which has recently entered into an agreement to borrow $700 million without parliamentary approval, in violation of the Constitution and the Petroleum Revenue Management Act) to fill the gap?

‘What will the government do if there is no IMF agreement? The questions are tall and this budget is therefore clouded with so much uncertainty going forward.’

Ghana sold Eurobonds in 2007 and in 2013 when the yield was eight percent, but analysts expected a higher rate this time. The rate reflected the appetite for relatively risky sovereigns giving lower yields in developed markets, they said.

The September sovereign bond was at a coupon rate of 8.125 percent, lower than analysts had expected, given the fiscal difficulties faced by Ghana as it wrestled with escalating inflation, a falling currency and a stubbornly high budget deficit.

The bond was, however, oversubscribed with orders of up to $3 billion.

“Investors saw fundamental long-term value in the Ghanaian economy. We have always emphasised that the mid-term prospects for Ghana were bright and with the coming on board of the IMF, we hope to come out of our short-term challenges pretty soon,” Terkper said in a statement last September.

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