The Chief Investment Strategist of Standard Chartered Bank Group, Steve Brice, has backed government’s recent decision to turn to the domestic capital market to raise capital by issuing its debut dollar-denominated bond considering it as a necessary move that will not harm the economy.
The position of the Standard Chartered boss contrast with that of other banking practitioners in the country who have questioned government’s entry to the capital market to raise dollar funds describing it as a “direct competition for limited local dollar bills.”
Speaking to journalists at the bank’s headquarters in Accra, Mr. Brice argued that the local dollar bond is a smart move from the managers of the economy to re-profile the country’s huge external debt.
“Ghana has significant external debt and it is trying to re-profile that debt to make sure it is sustainable. So that is what they are doing with the dollar bond by trying to extend the maturities significantly. They want to make sure it does not have big humps in maturities because that is where they get liquidity stress for the country and that can also create some challenges.
“So from that perspective, it [the local dollar bond] makes total sense. Clearly we want to get to a point in Ghana where the fiscal position is strong and we do not have to rely much on external debt. We have seen significant progress there already but we still need to see more progress,” Mr. Brice said.
When asked by the B&FT his opinion on whether the local dollar bond will impact negatively on the economy as some players in the banking industry and some financial analyst predict, Mr. Brice opined that the nature of the country’s economy makes it unlikely for it to happen.
“If you issue dollar bonds and that money comes from on-shore then you are draining liquidity at the local system and that could bring pressure on the local interest rate structure.
“We have seen that with a lot of oil exporters recently, but I know Ghana is a net oil importer. So I don’t think it will negatively impact on the economy. To be honest with you, I think it is a good thing and you [the country] should take advantage,” Mr. Brice maintained.
Even though the Finance Ministry expected the debut USD-denominated bond to raise around US$50million, the bond raised close to US$95million and attracted a total of 26 bids.
Irrespective of this feat, some financial analyst and bankers expressed their misgivings about the local dollar bond.
“I think this shift [raising dollars locally] is not healthy for the development of the local currency debt market and will strongly influence currency substitution- a situation where a foreign currency is mostly used in transaction in place of a domestic currency,” Sampson Akligoh, Managing Director of InvestCorp-an investment bank, told the B&FT.
“I disagree with Seth Terkper [Finance Minister] on this action. I think it is a wrong move. This is government competing directly with the banks for dollars,” Frank Adu Jnr., Managing Director of CAL Bank, also told the B&FT in an interview.
However, the Finance Minister, Seth Terkper, in a press briefing, assuaged any fears coming from various stakeholder, particularly with the banks, saying, government’s policy on the issue is in favour of the banks.
“Government policy has always benefited the banks. It is the reverse of what the banks are talking about now. What they are saying here is that we are mopping dollars from their deposits and it will lead to competition by government. But you saw the reverse where government action also benefited the banks when about 500 million dollars was used to pay domestic debt,” he said.
“If you look at that amount that we are raising which is 90 million dollars compared to the 250 million dollars in the 2014 bonds to do refinancing, we have used in excess of 500 million dollars to do domestic refinancing.
“You will see that the balance is more in favour of banks and the domestic market in easing pressure off the domestic market instead of putting pressure on the domestic market,” Mr. Terkper further stated.
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