Two financial experts have raised red flags about Ghana’s economy as government begins the process to issue its fourth Eurobond to raise $1 billion.

Sydney Casley-Hayford and Kenneth Thompson say government’s propensity to seek an easy way out of Ghana’s economic challenges through borrowing on the domestic and international markets rather spells danger for the country’s quest to make meaningful headway to put the economy on a strong footing.

Speaking Wednesday on current affairs programme, PM Express, on the Joy News channel on Multi TV, the two resource persons told show host Nana Ansah Kwao IV that until government moves away from its current strategy of raising money through bond issues, the current economic challenges may spiral.

“There seems to be an escalating debt build up and we are unable to sustain the payments as we go forward,” said Casley-Hayford, noting that managers of the economy seem to be borrowing rather aimlessly from the domestic market especially.

“Government has to rationalise its expenditures drastically,” Casley-Hayford suggested.

Kenneth Thompson

Kenneth Thompson, Chief Executive of Dalex Finance also pointed this out to government: “You can’t continue to borrow to consume. You have to cut cost or increase revenue or do both, there is no other way out”.

He said if the borrowing spree persists, Ghana’s high debts could cause both local and foreign investors to be concerned about doing business with the country “because they won’t feel secure.”

The Finance Ministry released a statement Wednesday that the country has clinched a $1 billion deal with its fourth Eurobond roadshow at a coupon rate of 10.75%.

“The bond is a soft amortizing one with a tenure of 15 years amortising in years 2028, 2029 and 2030. The principal will be repaid in three instalments of US$333 million in years 2028 and 2029, and US$334 million in 2030. The 15-year tenure means that Ghana has become the first sub-Saharan African country outside South Africa to successfully issue a 15-year bond,” the release said.

To suggest that it got the best deal or that foreign investors are confident about the country’s credit worthiness, the Finance Ministry’s statement said “the bond was oversubscribed, with orders exceeding US$2 billion compared to a target of US$ 1.0 billion.”

However, Mr Kenneth Thompson said oversubscription of the latest bonds issue does not mean confidence in the country’s ability to pay back interests on the loan.

“Over subscription is merely a play of words. It does not really mean you got what you wanted in terms of a good deal,” he said.

He said the fact that government intended to raise $1.5 billion on the international market but was able to raise only $1 billion is a sign that confidence in the economy is waning.

The International Monetary Fund (IMF) has also been making similar suggestions to government as it forecasts a debt-to-GDP ratio of more than 72% for the Ghana economy by end of the year.

Even at the current debt-to-GDP ratio of 62%, the IMF has classified Ghana as a ‘High Debt Distress’ country

When a country is classified as High Debt Distress country, the IMF usually prescribes a freeze on borrowing by that country until it makes some progress in reducing its debts.

Sydney casley-Hayford

Sydney Casley-Hayford believes he has a solution to the country’s debt quagmire.

He said although government’s continuous borrowing on the international market is a problem, a bigger problem is the volume of domestic borrowing that government has done over the years.

“Government’s main concern should be how it to cut its appetite for domestic borrowing”, he said on PM Express Wednesday.

He said to do that government must shift the mix from borrowing too much on the domestic market and let the private sector do the borrowing.

“In essence government must come out of the domestic borrowing  vicious cycle that it finds itself,” he said,

He said government must take a look at its revenue lines and find ways of increasing it.

“In this country, a few culprits are taxed and really taxed heavily in order to bring in corporate revenue. The bulk of our taxes are coming from indirect taxes which is from VAT. The rest of it is neither here nor there,” he observed.

He said government must think of smart ways of increasing revenue, but this must not necessarily be through tax hikes.