Parliament approves $1.5bn Eurobond money for budget

Dollar PixParliament yesterday approved a request by the government to raise an amount of US$1.5 billion from the European Bond Market to support the 2015 budget and refinance domestic and external debts.

About US$500 million of the proceeds from the bond would be used for liability management while the remaining US$1 billion would be used to support programmes and projects under the budget.

The purpose of the bond issue, according to the government, was to continue the diversification of the country’s sources of funding.

The Finance Minister, Mr. Seth Terkper, made the request for the approval of the 2015 Eurobond Financing Plan when he presented the Supplementary Budget for the 2015 Financial Year in Parliament on Tuesday, July 21.

The House’s Committee on Finance, in its report on the request, indicated that the proposed 2015 bond transaction had been designed to achieve the government’s refinancing objectives and provide cheaper and longer term resources for financing the 2015 budget.

The committee observed that the maturity profile of the public debt indicated that currently, 75 per cent of the domestic debt was short to medium term, with short term debt constituting 39 per cent as at December 2014.

In addition, it said currently there were three Eurobonds outstanding with maturity profiles of October 2017, US$531 million, August 2023, US$1 billion and January 2026, US$1 billion.

The report said the Finance Minister told members of the committee, chaired by James KlutseAvedzi, that the current maturity profile of the country’s domestic debt posed a number of challenges which included high risks associated with frequent rollover of short and medium term debts because of volatile interest rates.

“Further, the current high domestic interest rate also indicates that rollovers are increasing the debt services component of expenditures,” it said.

It said the debt issue for the financing of the existing debt would create a fiscal space for a significant amount of domestic debt to be rolled over into longer maturity debt with lower interest costs.

The report said the Finance Minister, responding to the committee’s concerns on the impact of the bond issue on the national debt stock and the ability of the country to honour its debt obligations, pointed out that the impact of the sovereign bond issue would be relatively neutral with respect to the overall debt stock as it would mostly replace debt that was already included in the public debt stock.

Furthermore, it said portions of the proceeds that would be used to finance capital expenditures in the 2015 budget would be in lieu of the previously projected domestic financing which was even more expensive.

On the uniqueness of the bond, the report said the Finance Minister told the members that the structure of the proposed bond would differ from previous Eurobonds in two ways.

“The first bond issue will be backed by a sinking fund to be funded from the portion of the excess of the Stablilisation Fund earmarked for debt amortisation. The amortisation and sinking fund plan backed by the Petroleum Revenue Management Act, the minister added, will smoothen the redemption obligations between 2023 and 2026,” it said.

The second unique feature the minister said, was that the bond issue would be backed by the World Bank Policy Based Guarantee which would enable the bond to be issued with a higher rating than the current sovereign guarantee, thus, reducing the interest rate, according to the committee’s report.

By Yaw Kyei

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