The government’s consideration to issue diaspora bonds to raise funds in the future is a step in the direction, Dr. John Gatsi, a Chartered Economist and Head of Finance Department, University of Cape Coast Business School has said.
Speaking in an interview with Times Business in Accra yesterday he said the government could not depend on one way of raising money adding that the diaspora bond would provide additional source for the government to raise funds to execute development projects.
Finance Minister, Seth Terkper recently gave the indication that the government is considering issuing diaspora bonds to raise cheaper funds in a bid to tap into the wealth of Ghanaian emigrants after the country’s first domestic dollar bond issued recently was deemed a success.
Diaspora bonds are issued by a country to its own in the Diaspora to tap into their assets in the destination country – as an alternative to borrowing from the international capital market, multilateral finance institutions or bilaterally from governments.
The practice goes back to the 1930s in China and Japan, and was later followed by Israel and India in the 1950s.
Diaspora bonds are typically used as project financing tools for public-sector, large-scale infrastructural development. Generally, they are to be used by a country to implement its development strategy, the report said. Lately, the World Bank has been advising countries about Diaspora bonds, arguing that while remittances help countries like Ghana benefit from the incomes of their emigrant populations, Diaspora bonds are a means to tap into their savings, too.
Mr. Terkper said, “Diapora bonds are feasible. We are looking at it. Everything is feasible with planning and with stabilisation of the economy.
“There have been long standing suggestions that we should be doing diaspora bonds given the large number of Ghanaians who are living outside. We are going to see the extent to which there could be an interest in Diasporans who are holding money,”he said.
“These are all just plans. We are not going to rush into it but we could see whether this could be a step towards making them buy bonds,” he added.
“The Diaspora Bond is for residents who are in the diaspora or who are outside and have resources like someone living in the US and earning dollars. So, you can look at this group and target them and give them an instrument, just like a bond, just as we have the sovereign bond or the corporate bond,” Mr. Terkper explained.
He indicated that Diapora funds constitute a significant amount of inflows into the economy. “It’s about the third or fourth largest source of foreign exchange into the country. With such bonds there should be a number of roadshows and awareness creation to assure investors of repayment and also understand that their monies will be safe.”
Dr. Gatsi said for countries that have large diaspora populations, the bonds provide an opportunity to tap into a capital market beyond international investors, foreign direct investment, or loans.
He cited the example of Israel and India who have had significant success issuing bonds targeted at their diasporas.
Dr. Gatsi said diaspora bonds were less expensive as compared to some other sources of raising funds.
“It is important to note that general economy and other economic indicators would be considered by those in the Diaspora in investing in the bonds,” he said.
By David Adadevoh