Government to develop guidelines to regulate borrowing by MDAs, SOE
Government has kick-started processes to develop guidelines to regulate borrowing by MDAs and State Owned Enterprises (SOEs) within the limit of the annual borrowing plan developed in line with Government’s debt strategy for the medium term.
The guidelines are expected to be finalised by the end of the year 2018, following comprehensive stakeholder consultations and feedback, Mr Ken Ofori-Atta, Minister for Finance said this when he presented the 2018 Mid-year Budget Review to Parliament in Accra, on Thursday.
He said Government would continue the course began in the 2018-2021 Medium Term Debt Management Strategy (MTDS), aimed at extending the maturity profile of the debt portfolio through the issuance of longer-dated instruments to reduce the rollover and refinancing risks.
He said in the remaining quarters of the year, the Credit Rating Team of Government would continue to conduct credit risk assessments on public entities and would complete assessments for five additional SOEs to ascertain their credit worthiness.
Mr Ofori-Atta said Government would also continue ongoing work to finalise credit risk assessment guidelines to govern credit risk assessment of public entities.
“Guidelines for the contracting of guarantees and for entering into on-lending arrangements, as well as fee guidelines to inform the charging of guarantee fees will also be prepared and finalised over the medium term,” he added.
He said over the medium term, Government would continue to carry out its mandate of managing the public debt at the lowest possible cost and subject to prudent levels of risk by conducting debt sustainability analyses and revising the medium term debt strategy to guide borrowing.
The Minister said recommendations from these documents would inform policy decision on reducing the debt burden and ensuring insulation against other fiscal vulnerabilities.
On the currency stability, Mr Ofori-Atta said over the past few months, Government has improved the fundamentals of the economy to stabilise the currency and this was evidence in the positive trade balance, improved gross international reserves, declining public debt to GDP and better liability management of the public debt.
He said the Cedi was stable in the first quarter of 2018 with a slight year to date depreciation in April in relation to the US Dollar, however, in May and June “we saw pressures on the Cedi from a strengthening US Dollar and oil prices among others, which weakened the performance of the Cedi.”
“However, the fundamentals of the economy remain strong and the BoG has built sufficient reserves due to the Resolving Challenges in the Financial Services Sector,” he said.
He said Government was confronted with one of the most difficult challenges in the financial sector in recent times due to weak regulation, market misconduct, bad corporate Governance, and accumulation of Government arrears in energy and construction related payments, which occurred mainly between 2012 and 2016.
The Minister said years of weak capitalization, poor risk management and corporate governance, as well as, the impact of macro-economic conditions, led to significant impairments to capital, persistent liquidity challenges, and solvency challenges for a number of regulated institutions.
He said the fiscal cost of cleaning-up the financial services sector is enormous, for example, in resolving the defunct UT and Capital Bank, government approved Purchase and Assumption (P&A) transaction in respect of the two banks on August 9, 2017.
“To lessen the burden on GCB Bank Limited, government also issued a 10-year fully amortizing domestic bond, with effective date of January 1, 2018, being redeemed in 10 equal instalments, at a coupon rate of 12 per cent,” he said.
He said the bond structure, which ensures regular injection of cash, would improve the financial position of GCB Bank Limited, and would eliminate any financial strain the P&A may bring along.