NOTES:
The Government of Ghana (GoG), through the Bank of Ghana (BoG), plans to raise GH₵25.42 Billion in the First Half of the Year ( January to June 2015) by issuing Bills of various maturities.
ANALYSIS:
CAMCAP Analytics, a division of Cambridge Capital Advisors Limited, a SEC-Licensed and Regulated investment advisor, conducted a comparative analysis on domestic borrowing (securities) by GoG and presents the key findings below:
1. The projected GH₵25.42 Billion to be raised represent an increase of 60.77% over GoG domestic borrowing (securities) over the same period in 2014.
2. It also represents an increase of 226.27% over the same period in 2012, and 115.08% in 2013
3. The Average Rate at which GoG borrowed across securities of all maturities issued from 2012 to 2014 are as follows:
– 2012: 20.51%
– 2013: 20.80%
– 2014: 23.01%
In the first week alone of 2015, and covering securities of maturities from 91-Day to 1-Year, the Average Rate is about 24.91%.
OTHER DATA:
4. The Provisional Outturn (January – September) for Total Government expenditure in 2014 was GH₵35.670 Billion (2015 Budget Statement)
5. It is projected that Total Government expenditure for the Fiscal Year 2015 will be GH₵41.222 Billion, representing a projected increase of 15.57% over that of 2014 (2015 Budget Statement)
6. In 2014, the mix of External to Domestic Debt in the Total Public Debt was as follows:
– External: 58.32% (GH₵40.644 Billion)
– Domestic: 41.68% (GH₵29.042 Billion)
COMMENTS & OPINIONS
In our opinion, the principal implications, and fallouts of this projected borrowing are as follows:
1. Expenditure Projections & Borrowing Gaps: The 2015 Budget Statement projects about 16% increase in Total Government expenditure. Though just one component, a potential increase of 60.77% in domestic borrowing (securities) is therefore inexplicable. One would expect all sources of debt to rise by a commensurate rate. GoG needs to provide further explanations for this.
2. Increase in Debt Stock: There is an increased risk of Ghana reaching a tipping point in debt levels that can lead to serious economic consequences worse than it is currently facing. The IMF has expressed deep concerns in that regard.
3. Credit Squeeze and Impact on Private Sector: (a). Currently, 42% of all GoG public debt is attributed to domestic sources. This has already crowded a lot of private sector businesses out of the credit market, especially with Government Treasury Bills in the high 20s. All things being equal, and assuming no other debt (external and/or non-treasury bill sourced), the projected GH₵25.42 Billion to be raised will increase Domestic Borrowing portion of the Public Debt to about 57.26%.
(b). The combined effect of a potential credit crunch to a private sector already struggling under a myriad of issues, including rolling power cuts (Dumsor), high fuel prices, volatile exchange rate markets, and various taxes can lead to more job losses as, especially, manufacturing firms reduce production levels. Manufacturing contribution to Real GDP Growth has reduced by 8.5% points from 2013 to 2014 due to the same mix of issues.
OUTLOOK
According to the 2015 Budget, Ghana’s Total Public Debt is 60.8% of GDP. Other analysts have suggested that it is likely to be around 70% of GDP. The enormous strain the debt overhang has placed on the economy, coupled with narrowing revenue streams, and other fiscal challenges, has already led Ghana to commence discussions with the IMF for a potential bailout. It is our view that increased borrowing is not the solution to the fiscal constraints the economy faces. Government must be willing to make deep cuts in public expenditure while at the same time ensuring prudent use of its resources.
Source: Evron Hughes
