Ghanaians have been tricked to believe that the government has won a golden chance raffle of $3b and for which reason, a mighty Kenkey Party at the forecourt of the Ministry of Finance was justified.
It isn’t so. The bond market isn’t universal lottery park. It’s a debt selling place for governments and companies. Our government sold its debt at an irresistible interest rate on the market.
We sold bonds totalling $3b in 3 tranches maturing at 7years, 12years and 31years with interest rates 7.875%, 8.125% and 8.95% respectively. Some even think we’ve gone for loans. Not quite. Loans and bonds are both instruments for debt management, but they differ in significant ways.
In loans, you repay both interest and principal so the amount you owe reduces progressively. You may even accelerate your repayment in order to pay off earlier and thereby reduce the amount of interest you pay. In bonds, you pay interest only and then the face value on the date of maturity.
For the 7year bond at 7.875%, assuming the face value is $1b, we will pay interest of $78.75m/year. Over 7years, the total interest = 7x 78.75 = $551.25m. Then we pay the $1b too.
For the 12year bond at 8.125% assuming the face value is $1b, we will pay interest of $81.25m/year. Over 12years, the total interest =12 x 81.25=$975.00m. Then we pay the $1b too.
For the 31year bond at 8.95%, assuming the face value is $1b, we will pay interest of $89.5m/year. Over 31years, the total interest = 31x 89.5=$2774.50m. Then we pay the $1b too.
Total interest paid for $3b bond = 551.25 + 975 + 2774.50=$4301m or $4.3b Is this why we had the kenkey party? Oh Ghana!! Am I missing something? I just don’t get this. I hope the party bit isn’t true.
Do you know why it was over-subscribed? It’s nothing to do with confidence in our economy. How?
If I put $1m in a fix deposit account in Australia, I will get 2.5%/year interest. So why won’t I buy a bond that will give me cool 7.875%? Our bond is so cheap.
If a bank in Australia has $1b to lend to home buyers for 30year mortgage, it gets 4%/year interest. So why won’t this bank buy a bond for cool 8.95% over 31years?
This isn’t all that we owe. Until this present sale, we owe $13b in sovereign bonds. Now it’s $16b.
What are we using this $3b for? I hear $2b is going to support to budget. Hey, Ghana!!! Selling sovereign bonds to support the building of a cathedral and to pour money into useless new regions and districts. The other $1b will go to pay interest on outstanding bonds and loans. Who in his right mind will have confidence in an economy that sells bonds to pay for interest on previous bonds?
Instead of this corrupt, incompetent and arrogant CIA government explain to us how it intends to pay for the bonds, it’s talking about 50year bond and celebrating with a kenkey party for plunging our country into vicious cycle of indebtedness. What a bummer eurobond economy (BEE)!!
I ask again, QUO VADIS Ghana?
Tswa omanye aba.
