Head of the Economics Department at the University of Ghana, Professor Peter Quartey, has asked that government considers renegotiation of the IMF deal to reverse the conditionality which prohibits the central bank from financing government.
His call comes on the back of government’s decision to abandon the sale of its fifth Eurobond of US$1 billion, as investors demand higher yield to cushion against risk in the year the country prepares to go to the polls.
The fourth Eurobond issued last October raised US$1 billion with a yield of 10.75 percent, although the target was to raise US$1.5 billion at a 9.5 percent yield.
Prof. Quartey said the condition in the US$918 million Extended Credit Facility (ECF) that requires the central bank to reduce government’s financing to zero beginning this year, has left government cash-strapped, hence, pushing it to the European market for the fifth time.
“There is a big revenue gap that government needs to fill. Since the IMF programme does not allow the Bank of Ghana to finance government any longer, it has become necessary that government must find alternatives to raise revenue. So I think this influenced the decision of government to attempt issuing a fifth Eurobond so it can raise money to close the revenue gap,” he told the B&FT.
Government, he said, “must sit down with the IMF again and renegotiate some of the conditions, specifically the one that calls for zero financing from the central bank. It is possible and it can be done.”
He further advised government to find alternative ways of raising revenue, keep its spending under control and fight corruption in order to protect the limited public purse.
Economic Policy think-thank Institute for Fiscal Studies (IFS) has equally questioned the relevance of the zero-financing arrangement, calling for its retraction.
In an interaction with the media last month to review the IMF programme, Executive Director for IFS, Professor Newman Kusi, said: “Strengthening the central bank’s independence is supported, but reduction of the bank’s financing for government to zero in 2016 is unrealistic”.
Previously, the BoG Act required that the central bank could finance government, but not beyond 10 percent of the present year’s fiscal revenues.
In the wake of the Eurobond failure, the Finance Ministry has said it will tap into the Sinking Fund to raise revenue to settle maturing debts.
In a press statement last week, the ministry said: “The purpose of the Fund is to periodically redeem our external and domestic debt, especially current bullet loans. As at April 2016, an amount of about US$100.0 million had accumulated in the Sinking Fund.”
The statement said: “Under our Eurobond “buy-back” program (repurchase of outstanding bonds under favourable market conditions), Government has used a portion of the Sinking Fund proceeds to redeem US$30.0 million of the Sovereign Bond issued in 2007, incrementally from the markets,” Terkper explained to Parliament.
It said, however, that government will continue to build on its dialog with international investors while monitoring the markets and the International Monetary Fund (IMF) Board process with respect to the Third Review of the ongoing US$918 million Extended Credit Facility arrangement.