Ghana considers FX swaps to stabilize currency, Finance Minister Terkper says
- Bloomberg
- Jul 26, 2015
- 3 min read
The Ghanaian government is studying the use of FX swaps to stabilize the cedi, the country’s Finance Minister Seth Terkper told Bloomberg News reporter Ekow Dontoh in an interview July 10. This interview was edited and condensed.
Q: How much is Ghana seeking to raise from the Eurobond?
I think it is certain that we will do $1.5 billion. What is also certain is that the World Bank is coming in with a guarantee for the issue, which will hopefully improve the yields as well as the tenure of the facility. I think that we are going to have a very credible Eurobond issue this year with a superior guarantee to back it.
Q: What effects will the Greece situation have on Ghana’s Eurobond, especially as Tanzania has shelved plans to raise $600 million due to unfavorable conditions?
I don’t profess to know the reason why Tanzania may have shelved plans to sell its bonds, but we know conditions in the market can change positively and negatively. Let me give you two examples. In 2013 when we were issuing a Eurobond, U.S. Federal Reserve Chairman Ben Bernanke announced the likely tapering-off of quantitative easing and it shook the emerging markets. There was uncertainty at the time whether developing countries and lower middle-income countries should be in the market. But there was a window of opportunity which we managed to take advantage off to do the bond.
Similarly we announced an IMF program last year, and the view was that we would have been better off completing the program before issuing the bond. We respected the view very much, but we had other reasons to move quickly. China was cooling at the time, yet there was a very good window which made us perform beyond expectation. Our approach is to listen to our advisers closely enough to the date we envisage to do the bond and look at the condition at the time to decide whether to go ahead or not to go ahead.
Q: Is the market conducive enough to issue bonds from a Ghana perspective?
We think it’s conducive. We are looking that the opportunity cost of not doing the bond: whether our domestic market is deep enough to finance our projected budget deficit; whether our domestic capital market is deep enough to raise long term bonds for capital projects. One of the things which we haven’t gotten right in the past is financing our capital budget for the short-end of the market, which puts pressure on interest rates and crowds out a lot of the private sector. So the decision is not just about interest rates on the sovereign bond; market, you have to take a lot of factors into account.
Q: Why is the cedi appreciating against the dollar? Is it sustainable?
Together with the Bank of Ghana we are thinking through swap policies and other options, which will stabilize the cedi. We are also encouraging more inflows and managing reserves. Going forward, as we get more revenue from oil exports and gas production, we are going to be less dependent on cocoa as a source of foreign exchange revenue. The additional revenues will also help manage the volatilities. So it’s about tools, it’s about developing tools, just as we have been working to develop tools for the fiscal side, stabilization fund, sinking fund, debt management, and all those, we need to develop those forex tools.
We also need to change from being heavily import dependent to an export-led economy. We are looking at tax incentives and making business aware that VAT for exports is zero-rated. A report on these issues has been presented to the president and the next step will be cabinet and parliament approval to provide export credit and guarantees, especially to small-scale enterprises. This will lead to a diversification of the economy and address the decline in the value of the cedi.
IMF Report Strengthens Cedi
Q: Ghana is expecting $1.8 billion in cocoa loans, $1.5 billion from the Eurobond, as well as donor funds. What does that mean to the economy?
We are moving from a period of dryness to a period of flows. We have modest confidence that the cedi will keep its value going into the second half of the year because the supply side is going to be more active. But it’s again about managing this supply side properly to prepare for the next lean seasons.
Source: Bloomberg.com
By: Ekow Dontoh
