Parliament approves $750 million loan deal | Parliament
Parliament approved a $750 million loan deal to fund capital and growth-related spending in the 2022 budget.
The facility is part of the government’s International Capital Market Program (ICMP) aimed at raising funds to finance critical infrastructure projects in sectors such as roads, energy, railways and health, such as indicated in the 2022 budget.
Proceeds from the facility will also enable the government to meet its revenue projections in the budget and support government liability management.
The agreement, reached between the Government of Ghana and the African Export-Import Bank (AFREXIMBANK), is also expected to provide the foreign exchange needed to bolster the Bank of Ghana’s (BoG) reserves, which have risen from $9 billion. at $3 billion. billion.
According to a report submitted by Finance Committee Chairman Kwaku Kwarteng, who moved the motion for the House to approve the loan yesterday, the loan proceeds would be used to finance the Ofankor-Nsawam road ($200 million), the Konongo Ejisu-route ($75 million) and the completion of the NsawamApedwa road project ($10 million).
Others are Suame Interchange and Local Roads Projects ($47m), Completion of Flower Pot Interchange, LegonAccra ($35m), Completion of Sofo Line Interchange ($35 million), construction of the Kwabenya-Peduase road ($10 million). ) and the completion of Lots 5 and 6 of the Eastern Corridor ($70 million).
The rest concerns the Enkyikrom-Adawso road project ($98 million), the purchase of rolling stock and spare parts ($30 million) and the construction of stadium infrastructure for the African Games ($140 million). dollars).
Rationale for the loan According to the report, the credit facility had become necessary due to the government’s decision not to use the capital market to raise finance until market conditions improved.
Furthermore, he said that the increasing withdrawal of non-resident investors from Ghana’s domestic bond market, with its implications for the level of BoG reserves and foreign exchange management, generally necessitated the injection of additional foreign currency to bolster the country’s reserves to allow it to honor its obligations as they come due.
“The withdrawal of non-resident investors from the domestic bond market means that the government will have to adopt other innovative means to mobilize financial resources to support the implementation of the 2022 budget and finance liability management operations,” he said. -he declares.
The report noted that the government’s total foreign financing requirement for 2022 was estimated at $1.45 billion (equivalent to GHÐ9.09 billion), comprising exceptional financing of $700 million from the allocation of Special Drawing Rights (SDRs) from the International Monetary Fund (IMF) of $1 billion – which has been secured – and foreign financing of $750 million to be raised through the ICMP, with an option to raise 750 million additional dollars for budget support and liability management.
Financing needs have been forecast in the government’s 2022 budget statement and economic policy. This means that the approved budget authorized the government to raise up to $1.5 billion in foreign funding to support the implementation of the 2022 budget.
Significance of installation
According to the report, the Minister of Finance explained to the committee that the approval of the facility was urgently needed to avoid the bankruptcy of the country.
“The Minister indicated that the government has, over the past few years, accessed financing from the international capital market and the domestic bond market to support the execution of its budget.
“However, the international capital market is not available for Ghana this year due to the country’s credit rating downgrade by international rating agencies,” the finance minister said.
The report further explains that the government’s intention to raise funds in the domestic bond markets has also not yielded the desired result.
“As a result, the economy is currently facing rising inflation, rising interest rates, depreciating exchange rate and rising cost of energy.
“These challenges are further exacerbated by the rapid decline in BoG reserves, which have fallen from $9 billion to around $3 billion,” he said.
“With a monthly demand of more than $600 million, central bank reserves could be depleted within months unless urgent action is taken to shore up the country’s reserves,” the report said.
Maturity of debts
According to the report, the committee noted that a significant portion of Ghana’s debt will come due in early 2025 and 2026.
According to the 2021 Debt Management Report released by the Department of Finance, approximately $3 billion would be due in the first quarter of 2025 and 2026.
“However, the Ministry of Finance has not put in place any measures to make resources available to repay maturing debt, thus putting the country on a path of default over the next two years,” he said. he declared.
Although he supported the motion, Finance Committee member Dr. Cassiel Ato Forson raised concerns about Ghana’s debt sustainability.
He said that according to data made available by the Ministry of Finance, the country recorded total tax revenue of GHÐ 12.9 billion in the first quarter of this year.
Of this amount, Dr Forson said, the debt service obligations alone, made up of interest payments and amortization, amounted to GHÐ13.9 billion.
“Mr. President, this just means that the total tax revenue is not enough to service Ghana’s debt, and it calls on all of us to come together and work to ensure that our country returns to sustainable levels of the debt,” he said. .
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