Those who felt that the erstwhile Mahama administration was imprudent in making a US$1 billion Eurobond issuance an annual ritual, between 2014 and 2016, must be bewildered by the fact that, that administration’s most ardent critics are now part of the administration, that, since replacing his, have issued US$5 billion in Eurobonds within two years – 2018 and 2019. Just as curious is the fact that members of the immediate past administration, now in opposition, have suddenly become hyper-critical of Eurobond issuances.
All this just goes to show the extent to which Ghana’s political class – from both sides of political divide – will go to score points against their opponents by leveraging on the financial un-enlightenment of large segments of the electorate.
To be sure, most of the Eurobonds issued over the past half a decade have been used to refinance debts already issued rather than to increase the public debt further. Politicians on both sides of the divide have always been fully aware of this but simply cannot resist the temptation to make their opponents look irresponsible.
Unfortunately, such political posturing has forced restraint on the country’s economic managers even when opportunity beckons. Take Ghana’s current circumstances for instance.
Earlier this week, Ghana’s offer of US$3 billion in Eurobonds was oversubscribed nearly seven times, with US$21 billion put on the table by international investors. Ironically, the same country, under the same government is having to struggle weekly to get enough cedi-denominated financing just to meet its maturing debt repayment obligations.
Add to this the fact that in real terms, the dollar denominated Eurobond financing is cheaper; indeed, Ghana pays interest rates of up to two and a half times what it pays Eurobond investors, to attract investors into cedi denominated debt securities.
This is ostensibly because investors have to be compensated for incurring the exchange rate risk when investing in cedi denominated securities since they have to convert their dollars into cedis in order to invest and convert those cedis back into dollars when exiting. If during the tenure of the investment the cedi depreciates the foreign invest6or could lose rather than gain from the investment.
There are no such worries with Eurobonds since they are denominated in US dollars from start to finish.
Common sense therefore suggests that government should issue more Eurobonds and les cedi denominated bonds since the former are both cheaper and more attractive to investors.
One major reason why this is not happening is simply the negative connotation associated with Eurobond issuances, for political reasons.
In actual fact, since Ghana has to guarantee foreign investors that they can change their cedis into dollars when exiting from their cedi investments, there is no practical advantage of this over Eurobond investments; either way, Ghana must cough up foreign exchange when repayment time comes around.
Like with so many other crucial issues we call on Ghana’s political class to put the country’s best interests – including the need to manage the public debt as efficiently as possible – ahead of political point scoring.
Not only would this put an end to the demonization of Eurobond issuances by politicians in opposition; it would mean lower debt servicing costs and easier access to refinancing.
Surely that would be a good thing.
