Parliament has approved a $750 million loan agreement to finance capital and growth-related expenditures in the 2022 budget.
The facility forms part of the government’s international capital market programme (ICMP) aimed at raising funds to finance critical infrastructure projects in sectors such as roads, energy, railways and health, as captured in the 2022 budget.
Proceeds from the facility will also enable the government to meet its revenue projections in the budget and support the government’s liability management.
The agreement, which is between the government of Ghana and the African ExportImport Bank (AFREXIMBANK), is also expected to provide the needed foreign exchange to shore up the reserves of the Bank of Ghana (BoG), which have declined from $9 billion to $3 billion.
Per a report submitted by the Chairman of the Finance Committee, Kwaku Kwarteng, who moved the motion for the House to approve the loan yesterday, proceeds from the loan would be applied to finance the Ofankor-Nsawam road ($200 million), the Ejisu-Konongo road ($75million) and the completion of the NsawamApedwa road project ($10 million).
The others are the Suame Interchange and local roads projects ($47 million), the completion of Flower Pot Interchange, LegonAccra ($35 million), completion of the Sofo Line Interchange ($35 million), the construction of the Kwabenya-Peduase road ($10 million) and the completion of the Eastern Corridor Lots 5 and 6 ($70 million).
The rest are the Enkyikrom-Adawso road project ($98 million), the purchase of rolling stock and spare parts ($30 million) and the construction of stadia infrastructure for the African Games ($140 million).
Justification for loan Per the report, the credit facility had become necessary because of the decision by the government not to use the capital market to raise financing until market conditions improved.
Additionally, it said the increasing withdrawal of non-resident investors in Ghana’s domestic bond market, with its implications for the level of reserves of the BoG and foreign exchange management, generally required the injection of additional foreign currency to shore up the country’s reserves to enable it to meet its obligations when they fell due.
“The withdrawal of non-resident investors in the domestic bond market means that the government will need to adopt other innovative means to mobilize financial resources to support the implementation of the 2022 budget and financial liability management operations,” it said.
The report noted that the government’s total foreign financing requirement for 2022 was estimated at $1.45 billion (the equivalent of GHÐ9.09 billion), comprising exceptional financing of $700 million from the $1 billion International Monetary Fund’s (IMF’s) special drawing rights (SDR) allocation — which has been secured — and foreign financing of $750 million to be raised through the ICMP, with an option to raise a further $750 million for budget support and liability management.
The financing requirements were provided for in the 2022 Budget Statement and Economic Policy of the government. This means that the approved budget authorized the government to raise foreign financing of up to $1.5 billion to support the implementation of the 2022 budget.
Importance of facility
Per the report, the Minister of Finance explained to the committee that the approval of the facility was urgently needed to avoid the country going bankrupt.
“The minister indicated that the government had, over the past recent years, accessed financing from the international capital market and the domestic bond market to support the implementation of its budget.
“However, the international capital market is not available to Ghana this year as a result of the downgrade of the country’s credit rating by international rating agencies,” it quoted the Finance Minister as saying.
The report further explained that the government’s intention to raise funds from the domestic bond markets did not also yield the desired result.
“Consequently, the economy is presently challenged with rising inflation, rising interest rates, exchange rate depreciation and increasing energy cost.
“These challenges are further exacerbated by the rapidly dwindling reserves of the BoG, which have declined from $9 billion to about $3 billion,” it said.
“With a monthly demand of over $600 million, the reserves of the central bank may be exhausted in a few months if urgent steps are not taken to shore up the country’s reserves,” the report said.
Maturity of debts
Per the report, the committee noted that a significant proportion of Ghana’s debt would fall due in the early part of 2025 and 2026.
According to the 2021 debt management report issued by the Ministry of Finance, about $3 billion would fall due in the first quarter of 2025 and 2026.
“However, the MoF has not put in place any measure to make available resources to retire the maturing debt, thereby setting the country on the path of default in the next two years,” it said.
Although he supported the motion, the Ranking Member of the Finance Committee, Dr Cassiel Ato Forson, raised concern over Ghana’s debt sustainability.
He said per data made available by the Ministry of Finance, the country recorded total tax revenue of GHÐ12.9 billion in the first quarter of this year.
Of that amount, Dr Forson said, debt service obligations alone, made up of interest payments and amortisation, amounted toGHÐ13.9 billion.
“Mr Speaker, this simply means that total tax revenue is not enough to service Ghana’sdebt, and this calls on all of us to come together and work in a way to ensure that our country turns back to debt sustainability levels,” he said.