The loan arrangement for $750 million has been approved by Parliament.

 A $750 million credit deal has been authorized by Parliament to support capital and growth-related expenditures in the 2022 budget.

The facility is part of the government's international capital market plan (ICMP), which aims to raise funds to support key infrastructure projects in areas such as roads, electricity, railroads, and health, as outlined in the budget for 2022.

Proceeds from the facility will also allow the government to satisfy its income estimates in the budget and will help the government manage its liabilities. The arrangement, signed by the Ghanaian government and the African Export-Import Bank (AFREXIMBANK), is also expected to provide the necessary foreign money to shore up the Bank of Ghana's (BoG) reserves, which have fallen from $9 billion to $3 billion.

The loan proceeds would be used to finance the Ofankor-Nsawam road ($200 million), the Ejisu-Konongo road ($75 million), and the completion of the NsawamApedwa road project ($10 million), according to a report submitted by the Chairman of the Finance Committee, Kwaku Kwarteng, who moved the motion for the House to approve the loan yesterday. Other projects include the Suame Interchange and local road renovations ($47 million), the Flower Pot Interchange in LegonAccra ($35 million), the Sofo Line Interchange ($35 million), the Kwabenya-Peduase route ($10 million), and the completion of the Eastern Corridor Lots 5 and 6 ($70 million).

The remaining funds will be used to fund the Enkyikrom-Adawso road project ($98 million), the procurement of rolling stock and spare parts ($30 million), and the development of stadium infrastructure for the African Games ($140 million). Loan justification According to the report, the credit facility became required due to the government's decision not to obtain money through the capital market until market circumstances improved. Furthermore, it stated that the increasing withdrawal of non-resident investors from Ghana's domestic bond market, with its implications for the BoG's reserves and foreign exchange management, necessitated the injection of additional foreign currency to shore up the country's reserves in order to meet its obligations when they became due.

"Due to the withdrawal of non-resident investors from the domestic bond market," it added, "the government will need to employ alternative innovative measures to mobilize fi nancial resources to support the implementation of the 2022 budget and finance liability management activities." According to the report, the government's total foreign financing requirement for 2022 is estimated to be $1.45 billion (equivalent to GH9.09 billion), which includes $700 million in exceptional financing from the $1 billion International Monetary Fund (IMF) special drawing rights (SDR) allocation, which has been secured, and $750 million in foreign financing to be raised through the ICMP, with an option to raise an additional $750 million for budget support and liability management.

The finance requirements were outlined in the government's 2022 Budget Statement and Economic Policy. This implies that the approved budget authorized the government to raise up to $1.5 billion in foreign finance to assist the implementation of the 2022 budget.

The significance of convenience

According to the report, the Minister of Finance told the committee that approval of the facility was urgently needed to keep the government from falling bankrupt.

"The minister stated that the government has accessed finance from the international capital market and the domestic bond market in recent years to assist budget execution."

"However, the foreign capital market is not available to Ghana this year as a result of international rating agencies downgrading the country's credit rating," the Finance Minister was reported as saying. The study went on to clarify that the government's plan to generate cash through domestic bond markets did not result in the expected outcome.

"As a result, the economy is currently confronted with growing inflation, rising interest rates, currency devaluation, and rising energy costs." 

"These issues are worsened further by the BoG's fast diminishing reserves, which have fallen from $9 billion to around $3 billion," it stated. "With a monthly demand of over $600 million, the central bank's reserves may be depleted in a few months if immediate efforts to shore up the country's reserves are not done," the study warned.

Debt maturation

According to the study, the committee warned that a large chunk of Ghana's debt will become due in early 2025 and 2026. According to the Ministry of Finance's 2021 debt management report, about $3 billion will become due in the first quarters of 2025 and 2026. "However, the MoF has not implemented any measures to make available resources to discharge the maturing debt, putting the country on the verge of default in the next two years," it stated.

Debt maintenance

Despite his support for the proposal, Dr Cassiel Ato Forson, Ranking Member of the Finance Committee, expressed worry over Ghana's debt sustainability. According to Ministry of Finance figures, the government earned total tax income of GH12.9 billion in the first quarter of this year. Dr. Forson stated that debt servicing obligations, which include interest payments and amortisation, accounted for GH13.9 billion of that total.

"Mr Speaker, this simply implies that total tax collection is insufficient to cover Ghana's debt," he explained. "This calls on all of us to join together and work together to guarantee that our country returns to debt sustainability levels."