Focus on Ghana: Creating the regional financial hub

Ghana’s key economic indicators (GDP, inflation, etc.) were mostly positive in 2017. What are some of the drivers of this performance?

Over the last four years, the Ghanaian economy has faced severe challenges such as burgeoning debt and an energy crisis. When our
government began at the start of 2017, we wanted to be bold and come in with reforms that would unleash the potential of the Ghanaian people.

Our agenda was to create an economy where people feel ownership and buy into a vision of entrepreneurship. The first-year budget, with policies such as reducing taxes, helped sow the seeds for growth and jobs. However, the key success factor for this recovery is the economic relief that was provided in the latest budget, which focused on moving our economy from services to production.

There were also a number of initiatives we implemented such as taking pragmatic steps to strengthen the banking sector, by increasing the minimum capital requirements and tackling non-performing loans, which were a major headache for the sector. The government also took steps to address the challenges in the energy sector (power shortages) which were impairing productivity.

Another key thing that we did was to identify five key pillars of reforms, which were: restoring the economy; transforming agriculture and industry; revamping economic and social infrastructure; strengthening social protection and public service delivery institutions; and streamlining the earmarked funds. We were able to cut the latter to around 25% of GDP. These reforms strengthened consumer and investor confidence last year.

But we didn’t stop there. We were also keen to ensure that our economic policy was more transparent, so we focused on the key themes of policy clarity and credibility. We achieved this by being frank and open with investors, the media and key stakeholders across various sectors.

This policy shift allowed us to achieve one of our greatest successes to date, which was reprofiling the debt through the Franklin Templeton (FT) transaction, which was a market transaction that helped us restructure our public debts by raising over $2.25bn – which was the single-biggest daily transaction in sub-Saharan Africa at the time – with a yield curve of 15 years at 19.75%.

Analysts have raised concerns about the country’s debt-to-GDP ratio. What steps have been taken to reduce this? And how has the debt situation affected the President’s economic agenda?

We have reduced the debt-to-GDP ratio from around 73.3% at the beginning of 2017 to around 68.7%. By reprofiling the debts and implementing the reforms mentioned above, we have boosted economic growth, which has helped to reduce our debt levels. Also, when I came in, interest rates were above 22%, but we have managed to reduce that figure to 13%.

We also significantly reduced the primary balance last year and we are hoping to have a surplus in 2018, which is a strong indicator that we are not looking to add to the national debt. We will continue to conduct macroeconomic reforms to rein in public debt and to ensure public debt is sustainable.

The 2018 budget has signalled clearly that infrastructure, industrialisation and investment in agriculture cannot happen on the back of government balance sheets, so we have come up with what we call the ‘Framework for Economic Transformation’, which will put the burden of economic growth and development onto the shoulders of the private sector.

The National Development Bank (NDB) – which will be formed by a merger of the National Investment Bank (NIB) and the Agricultural Development Bank (ADB), and will only be partly owned by the government – will act as a vehicle to attract both foreign and domestic private capital under a private sector model to finance industry and agriculture. We are planning on seeding it for over $500m.

Additionally, the Ghana Infrastructure Investment Fund (GIIF) will restructure its operations to raise over $1bn and the Ghana Eximbank will also look to leverage on foreign private money to be able to support exports. Therefore, concerns about adding to the national debt are not valid because you can see our funding model is outside of the government balance sheets.

Our overall strategy is to position Ghana as a regional hub for financial services, where we will be able to attract a lot of private money starting with local sources including pension and insurance funds.

How successful was the energy bond and have you noticed interest in it waning?

The bond was a great success from all stakeholders’ point of view. We managed to restructure these energy sector levies that were leading to problems in the banking sector by issuing the energy bond.

We structured the bond in such a way so that we didn’t coalesce state-owned enterprises’ debt with government debt. Therefore, the taxpayer didn’t foot the bill and the banks managed to deal with some of their non-performing loans.

It was also designed in such a way that we didn’t give free money to the energy sector companies and there was a strong refinancing element. We cleaned up the debt so that the energy firms were not under as much pressure as they were before, but we also held them accountable for their debts. 

However, I disagree that interest in the bond is falling away. As with any type of new policy, especially one as historic as the Energy Sector Levy Act (ESLA) bond, it is prudent to take things slowly.

The energy bond was designed to be issued in tranches, so when the bond was initially issued the key decision for us was to ensure that the coupon on the bond is something that reflects market fundamentals.

We wanted to avoid a situation where investors bid in excess of what we expect but the bids don’t make good financial sense – then, it is my interest to protect the public. Therefore, we have ensured that there is a cut-off coupon that reflects strong fundamentals.

We will be issuing the bond in tranches so that as the market improves and the ESLA itself gains a positive track record, then market participants will show greater interest in the next tranche.   

How do you plan on further engaging in the bond market? And are you planning on utilising new vehicles similar to the energy bond to tap the market?

We have taken necessary steps to deepen the benchmark yields so that they are more liquid and they serve as an actual benchmark, and we have also taken steps to normalise the yield curve.

Our aim is to go to the bond market to ensure that long-term capital is available across the economic spectrum. So, we have taken very measured steps to ensure that we have a dynamic capital market, including national pensions and insurance reforms announced in the 2018 budget.