The immediate-past Finance Minister, Mr Seth Terkper, has said that it is important to let the markets know the reasons for some of the challenges facing the economy and step back from the partisanship, which does the economy no good.
Many of the causes of the slow economic growth and, consequently, difficult fiscal situation were beyond the nation’s control, but important measures were taken to manage the challenges and prevent a crisis, he said in an exclusive interview with the Daily Graphic in Accra at the weekend.
He added that there was even the tendency for some multilateral institutions to assess African countries on the basis of few indicators which, while important, might not highlight the underlying causes of the performance of those countries.
“The disruption of gas and crude oil supplies due to the damage of the turret-bearing of the Floating Production, Storage and Offloading (FPSO) Nkrumah for the first half of last year was a major setback to economic performance in 2016.
“It affected oil revenue flows to the budget, export earnings and the Bank of Ghana’s (BoG) foreign currency reserves, as well as economic growth, mainly through the supply of gas that affected domestic businesses,” the former minister said.
Earlier, the economy had experienced a nearly three-year shutdown in gas supply as a result of the damage to the West Africa Gas Pipeline, the line that pipes gas from Nigeria to Ghana for electricity production.
Mr Terkper said the inability to explain those issues to the markets gave the perception that Ghana went through collective non-performance, notably in an election year and a strict IMF programme that denied fiscal space for even the elections.
The fall in commodity prices and the dwindling access to grants and concessional loans, arising from Ghana’s new middle-income country (MIC) status, he said, were critical challenges that threatened the sound fundamentals of the economy.
“Ghana did not go into recession, as some sub-Sahara African, emerging and developed countries are experiencing. Nonetheless, the government continued to invest in infrastructure and, therefore, some modest economic growth was still achieved in 2016 despite the difficulties,” he said.
He recounted that a debt management strategy was also rolled out to deal with the risks of debt refinancing that the economy was facing.
He mentioned the redemption of the 2007 Eurobond and extension of the redemption date for expensive treasury bills that the government merely rolled over in the past as some of the strategies the new debt management system helped to achieve.
“For the first time in a decade, since the highly indebted poor countries (HIPC) initiative, and for the third year in a row, the rate of growth of our debt has started to decline. This is the reason why the debt-to-GDP ratio did not reach the predicted 99 per cent despite the sluggish growth noted earlier,” he said.
Mr Terkper explained that under the programme, a significant amount of Ghana’s sovereign bond debt (over US $350 million) was bought back, making it the first time in the nation’s history.
“This has ensured that Ghana does not have to raise US$750 million to redeem the bond this year,” he said.
That, he said, would play to the advantage of the economy, especially in the eyes of the international financial market.
“Even with low crude oil prices, which have also recovered, the markets know, for a fact, that our Sinking Fund can now buy back about 75 per cent of the bonds we have issued through 2030. Few developing countries have this profile and we need to refinance the 2023 bond to make this even better.
“If we do not continue to improve our presence and offer tangible reasons to the markets for the recent setbacks, we will simply have to go for more expensive financing options, including the issuance of 3-month treasury bills to finance capital intensive infrastructure projects and this will not be efficient,” he said.
Strong construction sector
Mr Terkper also said he did not want to give the impression that it was all rosy, and we “can blame every non-performance on external factors.
“However, these external factors were real and the economy too had good prospects, which should be recognised and stressed to boost the sentiments of investors, especially as Ghana may yet decide to issue more bonds for debt management and investment.
“We have a strong construction and growing services sector and our gas-to-power plans are on course, albeit with state-owned enterprises (SOE) and public policy there are issues that are to be resolved.”
“Nonetheless, it means better prospects of improved power supply for existing industries and also to develop new industries such as petrochemicals. We also have a new Public Finance Management (PFM) Act and policy framework, with fiscal responsibility provisions, that will help settle some of the issues in the ongoing debate — commitments and end-year cut off rules for preparing the Public Accounts and Budget,” he said.
Stop partisan rhetoric
While calling for the partisan rhetoric to be toned down and substituted with relatively more comprehensive discussions, Mr Terkper urged Ghanaians to use the opportunity of the upcoming 2017 budget to build consensus on the measures taken to date and their revision to help realise Ghana’s bright prospects.
On the recent slump in the cedi against the US dollar, the former Finance Minister said: “the talk in town is that the reduction in T-Bill rates is one of the causes of the depreciation of the cedi. This is because there is a shift by Ghanaians to buying foreign currency as a store of value.
“We should not overplay this factor because of the traditional high dollar demand season, when pressure mounts on the cedi. The factors include corporate filing, repatriation of earnings, the end of the cocoa season and speculation.
“We can all agree that there are dollar or foreign currency funds looking for returns. We know that we have a generous foreign exchange retention policy for foreign and domestic investors, diaspora fund remittances, per diem and other funding sources. We also know that our banks hold dollars at very low or nil returns.
“When the Ministry of Finance issued its maiden dollar bond, it was oversubscribed. It commanded a six per cent rate, even better than the rate on our domestic and sovereign bonds,” the former minister said.
While noting the need to get a formal avenue for those funds, Mr Terpker said one recommendation was for the Export Import Bank (EXIM Bank) to issue dollar bonds to support exports.
He mentioned the benefits as including repayment in convertible currency from escrowed export earnings, healthy returns to holders who traded their holdings, less hoarding and speculation, and EXIM Bank not waiting perpetually for government to provide it with funding.
He added that that kind of scheme could be put in place with collaboration from the BoG, the Ministry of Finance, and the Ghana Stock Exchange.