Akufo Addo’s US$5 billion Bond Plan Hits Rocks -Ghana Forced Into Austerity Situation

The Akufo Addo administration’s plan to raise some US$5 billion bonds on the International Capital Market is set for a potential failure as the government is cited in default following a rise in principal arrears owed to external official creditors in 2018, the Economic Intelligence Unit reports.

According to the Ken Ofori-Atta-led Finance Ministry, the government intends to raise the US$5 billion be used to support growth-oriented expenditures in the 2021 budget and use part to service other Eurobond debts.

According to a statement from the Finance Ministry, Bank of America, Citi Bank, Rand Merchant Bank, Standard Chartered Bank and Standard Bank have been penciled down as lead managers for Eurobonds.

However, experts think the combined clout of these international syndicates of banks will not save Ghana from the potential refusal of investors to commit, due to the high-risk Ghana has currently become due to its highly indebted status.

Ghana’s debt to GDP is headed for 80%, several points above the debt sustainability cut-off of 70% debt to GDP.

“Ghana is no longer at risk of debt distress as claimed by the World Bank, we are actually in debt distress as we have defaulted and cannot pay maturing loans owed to official external creditors and are now accumulating arrears of unpaid official external debts under,” Isaac Adongo, the opposition National Democratic Congress (NDC) parliamentarian and finance spokesperson wrote.

“Ghana now facing frightening rising fiscal risks, external vulnerabilities and in debt distress but still looking to do $5 billion junk Eurobonds in 2021 under Dr Bawumia.”

The bond the Akufo Addo administration seeks would be the fifth in five years, just one more than the previous administration of the John Dramani Mahama sourced. 

However, the total aggregate of Eurobonds sourced by the Akufo Addo administration is the highest of all previous administrations combined, proving beyond doubt the insatiable appetite of the administration for racking up debt in the name of the country.

The NPP administration headed by President Akufo Addo has so far secured over US$ 11 billion in Eurobonds, this is more than 200% of the combined issues done by the John Kufour administration (US$750 million) and the Mahama administration (US$3.5 billion).

With the plan to issue a US$5 billion Eurobond, the Akufo Addo administration will be clocking an unprecedented US$ 16 billion in just five years.

Yet, the administration is the least to have invested in infrastructure, particularly in the health, road and education sectors.

Meanwhile, according to a professor of economics from the University of Cape Coast, Professor John Gatsi, the poor management of the economy by the Akufo Addo administration has driven the country into an austerity situation.

He cited examples that prove his theory. First, he cites data in the 2021 budget that shows that more than Ghc35billion is allocated to cater for interest payments while about Ghc30billion is allocated to compensation. “In the 2021 budget interest payments have been given preference above compensation to avoid defaulting,” Professor Gatsi wrote in a statement.

“Another sign that may trigger the presence of austerity is a double-digit deficit for which desperate measures such as the introduction of multiple tax measures and levies are imposed. The interesting thing is that the projected fiscal deficit of 9.5% will translate into about GHC 31billion new borrowing in 2021. If new borrowing in a fiscal year is very close to interest payment then borrowing may not be for investment purposes.”

Prof. Gatsi adds that the current austerity has been deliberately imposed on Ghanaians by the Akufo Addo administration because of its poor handling of the economy. “Government is implementing austerity budget with a blinked eye over the apparent difficulties facing ordinary people and workers. Ghanaians are used to austerity programs occasioned by the InternationalMonetary Fund (IMF) program but this one is imposed deliberately by our own government,” Prof. Gatsi wrote.