By: Fred Yaw Sarpong
Government is to clear a total arrears of GHc5,130.0 million owed by the utility companies and other state-owned-enterprises (SOEs) by 2017, Daily Express has learnt.
The amount also includes statutory funds and the pension fund. Government said it will first clear GHc2,313.2 million in 2016 and clear the remaining GHc2,816.8 million arrears by 2017.
This was announced by the government in a memorandum updates and reports developments on Ghana’s economic and financial policies for 2015–2017, submitted to the International Monetary Fund (IMF) as part of IMF review of Ghana’s economy.
This is part of a memorandum update submitted by the Government of Ghana, during the second review of Ghana’s economy by the International Monetary Fund.
According to the government, this form part of its commitment to its medium –term arrears clearance plan.
However, the government has made provision of GH¢800 million for the repayment of potential arrears that may be identified through the ongoing audit of the additional claims by oil importers related to losses due to under-pricing and foreign exchanges losses in 2014 and early 2015.
In order for the Program Financing and Debt Management Strategy to be implemented effectively, the memorandum states that financing of the program will be underpinned by the Medium-Term Debt Management Strategy (MTDS) covering the period between 2016 and 2018.
“The goal is to move to sustainable debt levels and reduce the cost of debt service while taking due account of the risks. The strategy aims to continue the course begun in the 2015-2017 MTDS, with the aim to ease supply pressures on the domestic market and achieve a reduction in domestic yields,” according to the memorandum.
Daily Express leant that the financing mix will include the issuance of a new Eurobond in the amount of US$750 million to US$1 billion in 2016.
This is to facilitate the elimination of government financing by the Bank of Ghana (BoG); to support international reserves; and to retire short-term domestic debt.
The Government of Ghana believes that the Eurobond, together with sustained fiscal consolidation, will help to continue reducing the volume of domestic debt issuance. The reduction in supply of domestic securities will coincide with renewed efforts to lengthen the maturities of domestic debt issuances.
“Consistent with this objective, the government recently opened the 2-year maturity segment to non-resident investors. The Ministry of Finance will also explore the possibility of credit lines arrangement or bridge financing for liquidity management purpose, in conjunction with a possible new BoG short-term credit window,” the government.
Over the medium-term, government said the financing mix will shift back to greater reliance on domestic debt, with further cuts in external borrowing in 2017 and 2018, when foreign exchange inflows will be boosted by oil and gas exports.
The Government said it has been implementing reforms which would deepen the domestic debt market. “The auction frequency of the 1-year and 2-year notes has been reduced to enhance the role of the secondary market. Benchmark securities will be introduced to improve the liquidity of the secondary market and facilitate price discovery.”
Ultimately, it indicated that the goal is to have a handful of benchmark securities, and retire over 270 non-fungible securities currently outstanding. The government plans to reopen existing securities to build benchmark securities. It would also implement exchange offers, in line with international best practices, in order to manage debt redemptions before maturity dates.
“The ongoing review of the primary dealer system is expected to be finalized in 2016. Greater price transparency and an increase in trading activities in the secondary market would be facilitated by a recently introduced new electronic trading platform. Additional reforms in 2016 will aim at revamping the repo market,” government pointed out.
The Government said it will continue to reinforce its debt management policy to reduce debt vulnerabilities through the use of additional initiatives including: On-lending and Escrow Arrangements; Sinking Fund; and Sovereign Guarantees.