New Eurobonds take public debt over US$33.55 billion

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The latest Eurobond issuance by the Government of Ghana, earlier this month has taken the country’s total public debt, in United States dollar terms to a little over US$33.55 billion. Actually, it is likely to be a little higher since this figure assumes no net borrowing by government in March and April this year, a most unlikely situation.

Data released by the Bank of Ghana at the weekend reveals that Ghana’s total public debt was equivalent to US$32.8 billion as at the end of February this year. Earlier this month, government did its largest ever Eurobond issue on international capital markets, raising a total of US$2 billion, comprising US$1 billion each in 15 year and 30 year bonds respectively.

While US$1.25 billion of this is being used to refinance more expensive, existing, earlier issued Eurobond debt, as well as shorter term domestic debt, US$750 million is entirely new debt, which will be used to finance government’s activities, primarily capital expenditure on development projects. Added to the US$32.8 billion public debt as at February, this brings Ghana’s sovereign indebtedness to a current total of US$33.55 billion.

The US$750 million rise in the public debt is the second highest monthly increase since the President Nana Akufo Addo administration assumed office in January 2017 – the highest was in April 2017 when government issued the equivalent of US$2.25 billion in cedi denominated medium and long term debt, under controversial circumstances that took the issue to both Ghana’s Commission for Human Rights and Administrative Justice and America’s Securities and Exchange Commission over alleged improper issuance procedures, according to the opposition National Democratic Congress. Of that issuance, US$1 billion was new debt used for government’s activities, thus adding to the public debt stock, while the rest was used for refinancing already existing debt.

The current public debt stock, inclusive of the US$750 million in new debt arising from this month’s Eurobond issuance indicates that the total public debt has risen by 12.6% over the US$29.8 billion inherited by the President Akufo-Addo administration when it assumed office 16 and a half months ago. The increase is even higher in cedi terms because of the effect of cedi depreciation against the US dollar which is why politicians in opposition always prefer using cedi denominated public debt figures to support their accusations of excessive borrowing against the incumbent government.

Prior to the latest Eurobond issuance, Ghana’s external public debt amounted to US$17.4 billion, equivalent to GHc76.9 billion, or 31.8% of Gross Domestic Product. Domestic debt amounted to GHc68.2 billion, equivalent to 28.2% of GDP.

The best news for Ghana is that the public debt to GDP ratio fell to 60% as at the end of February, a significant decline from the peak of over 70% as at the middle of the decade. However this drop is primarily the result of the dubious practice of using projected end of year GDP  figures for the computation of the ratio; in times of high projected economic growth {the projection for 2018 is over 7%), this brings the ratio down substantially from what it would have been if current GDP figures are used as is the more conventional global practice.

More instructive though is the fact that debt servicing takes up about 42% of government expenditure currently, which is constraining its ability to finance capital projects without resort to further borrowing.