Finally, a review is underway with regards to what Ghana’s Petroleum Funds are invested in. This is long overdue. Since the funds were created a decade ago, annual interest yields have rarely exceeded two percent, if at all. This is all the more incongruous, considering that for most years during the past decade Ghana has been taking on foreign debt by issuing Eurobonds on which it pays between seven and over 10 percent per annum.
The poor investment returns on the GPFs is simply because the law that set up the funds demands that they are invested offshore and for the sake of minimizing risk to the barest minimum, they are invested in the safest instruments available, these basically being United States treasury instruments of varying tenors.
Of course, minimum risk means minimum returns, since the two are closely correlated. However the framers of the law guiding the investment of the GPF s could not have foreseen just how minimal those returns would be. This is because the funds were created around the time that monetary easing was being introduced to navigate the global financial crisis that erupted in 2009 and which threatened a global economic recession. This led to the lowest interests in recent history, if not ever, a situation which has not changed much since then.
The COVID 19 pandemic’s outbreak has put paid to any plans for monetary tightening for now. Indeed it has led to even more intense monetary easing and thus even lower interest rates than those in place during the global economic crisis.
This means that if Ghana keeps to its original investment strategy for its GPFs as contained in the law that created them, the investment yields are more likely to reduce further than to rise.
The problem with the review of investment strategy now commencing is that higher yields can only be obtained by taking more risk and government is understandably reluctant to take chances, particularly with the Ghana Heritage Fund that is meant to be for the benefit of future generations after Ghana’s oil runs out. Higher yields would require investments in things like corporate bonds and emerging market economies sovereign debt bonds, none of which are nearly as safe as US treasuries.
Therefore, this newspaper suggests that the law be changed to allow for some of the GPFs investment portfolio to be put in Ghana’s own foreign debt issuances.
Here, the annual COCOBOD international syndicated loan comes to mind first. Ghana has been repaying it without default for decades which is why COCOBOD’s credit worthiness is so good that it takes the loan at barely half the interest rate demanded by investors on government’s own sovereign debt. Surely, investing the GPFs in that loan each year for coupon interest rates of some four percent would be better than the current yield.
Indeed, the GPFs could even fund part of Ghana’s Eurobond issuances to earn four times what it gets currently.
The trick would be to apply all the covenants given foreign lenders so as to guarantee repayments back into the funds.
Most importantly, if the investments do go wrong for some reason at least we would know we used the money ourselves – if an investment in a corporate bond or emerging market Eurobond went wrong we would lose everything.