Ghana seeks $1 billion bridge financing

Seth TerkperGhana will seek bridge finance of between $300 million and $1 billion in the first half of this year to redeem maturing domestic debt, according to a memo to parliament signed by Finance Minister Seth Terkper.

The debt finance plan emerged as Moody’s downgraded Ghana’s sovereign rating and put the West African country on a negative outlook to reflect its increasing debt burden, large fiscal imbalances and a sharp weakening of the cedi currency.

The memo seen by Reuters said the government would also issue a Eurobond of up to $1.5 billion in the second half of the year to retire the bridge finance, refinance domestic and external debt and fund 2015 capital expenditure.

“In view of the need to reduce debt service costs as part of fiscal consolidation and to manage maturities of debt obligations and bullet points, I … urge Members of Parliament to consider and approve the financing plan,” the memo said.

The Moody’s downgrade of one notch to B3 from B2 marks the latest economic reverse for Ghana, which for years saw some of the strongest growth rates on the continent due to exports of gold, cocoa and oil.

Ghana struck a deal with the International Monetary Fund (IMF) in February for a three-year $940 million assistance programme.

The deal should relieve fiscal pressure but there are concerns about the government’s ability to meet the IMF’s targets ahead of elections in 2016, said Fitch on Friday as it affirmed Ghana’s rating at ‘B’ with a negative outlook.

Terkper told Reuters that Ghana’s medium-term prospects are good and the government has taken the needed steps to achieve fiscal consolidation.

Ghana forecasts 2015 GDP growth at 3.9 per cent, below average for sub-Saharan Africa. The country also faces macroeconomic problems that raise the cost of external debt finance.

These include inflation that stood at 16.5 per cent in February, a currency that has fallen 9 per cent this year after a 31 per cent slide in 2014, and a fiscal deficit authorities say will decline to 7.5 per cent by the end of the year.

The government has started talks with a consortium including Bank of America Merrill Lynch as international advisers and Belstar Capital as local arrangers for the bridge finance.

“We need the money now, so we’ll take it from them and as soon as we raise the Eurobond, we pay back,” James Avedzi, head of the parliamentary finance committee, told Reuters.

The government must tackle its expensive domestic debt to achieve fiscal consolidation, but it also must demonstrate it can access capital markets to refinance its debt, said Razia Khan, head of Africa Research for Standard Chartered Bank.

“Any new borrowing is likely to be treated with caution and investors may demand ever-higher premiums in order to refinance Ghana’s debt,” given a Moody’s statement which put Ghanaian debt to GDP ratio at 67 percent, she said.

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