Investors� confidence in government securities is fast eroding amidst plans by government to borrow more than GH�25.36billion through the issuance of domestic securities during the second half of the year.
Information available to the B&FT indicates that foreign investors have for the third consecutive time in under a year cut their investments in government debt market instruments by GH�130million in the last three months to signal the deterioration of investor confidence in domestic securities.
In September last year, foreign investors held GH�7.68billion in government�s securities, which went down to GH�7.18billion in December and further dropped to GH�6.82billion in the first quarter of this year.
At the end of the second quarter of this year, foreign investors had further cut their investment in government�s securities to about GH�6.69billion, which is about 23.82% of total holdings for investors.
The gradual divestment of non-resident Ghanaians from government�s securities has come at a time it wants to borrow more, which presents a worrying situation to the country�s fiscal managers as foreign investors have been the principal target of governments� medium- and long-term bonds.
The Bank of Ghana last week served notice of government�s plans to issue 5-year Treasury bonds during the month of August to raise GH�500million.
The amount is part of the GH�25.36billion that government was to raise within July and December this year.
In the issuance calendar of the government of Ghana approved by chief director of the Ministry of Finance, Major (rtd) M.S. Tara, government intends to borrow from the domestic market to refinance maturing debts and support other liquidity challenges at a time domestic revenue has fallen short of expectations.
The amount government wants to raise in the last half of the year is similar to the GH�25.42billion targetted in the first six months of the year, which was exceeded by more than GH�763million to further deepen concerns about the country�s debt position.
Ghana�s total public debt, as at May this year, stood at GH�89.5 billion -- equivalent to 67.5 percent of GDP -- and the plans by government to borrow a further GH�25.36billion in addition to the planned US$1.5billion Eurobond this year has heightened concerns about its efforts to reduce the country�s budget deficit -- with increasing fears additional debt could further sink the country into a deep debt-trap that could increase the cost of borrowing for the private sector.
Currently, the country�s debt position looks dire as excessive spending of the government, rising interest costs, narrowed tax base of the economy -- coupled with macroeconomic challenges exacerbated by the three-year old power rationing programme -- has affected the tax revenue of government.
According to the provisional fiscal revenue data for the first five months of the year provided by the Finance Ministry, higher than expected public spending was one of the main factors behind the surge in borrowing.
The data issued by the Finance Ministry indicates that government�s revenue (including grants) for January to May summed up to GH�12billion, which is less than the GH�14.2 billion it expended within the period.
Interest payments on its borrowings alone for the first five months of the year amounted to GH�3.2billion, out of which GH�2.5billion was paid on domestic debts.
Following the IMF�s approval of Ghana�s request for a US$918million Extended Credit Facility, government is now pursuing a range of austerity measures to reduce the country�s public deficit.
These include retrenchment of public sector workers to reduce the wage bill, expanded tax regime, removal of subsidies on petroleum products, streamlining of tax exemptions for free zones firms and state-owned enterprises, freeze on public sector employment, clean-up of the wage bill, among others.
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