Bankers have expressed satisfaction with the first 100 days of President Nana Addo Dankwa Akufo-Addo government, singling out the move to re-profile short term debt into longer ones as one of the most impressive achievements.
“I think the main success, so far, is the re-profiling of the debt. Stopping the pressure of three to six-month Treasury Bills is a very powerful tool to bring interest rates down,” Francois Marchal, Deputy Managing Director of Societe Generale, told the B&FT in an interview.
Philip Oti-Mensah, Managing Director of OmniBank, noted that with the recent bond issuance, which saw the dollar component released back to help stabilise the cedi, has also grown the reserves and reduced interest rates.
“I find that strategy quite impressive. While most people are thinking about how the government will raise money, they used restructuring to release money to tackle the twin problem of interest rate and exchange rate, which is quite impressive,” he said.
The Finance Ministry recently successfully issued 15 and 7 year bonds, with the same coupon of 19.75percent, raising a total of US$1.13billion.
In addition, the ministry raised the cedi equivalent of US$1.12billion in 5 and 10 year bonds via a tap-in arrangement, bringing in a total of US$2.25 billion.
Ken Ofori-Atta, the Minister, stated that the proceeds will be used to repurchase and/or retire a portion of the higher coupon short-term public debt instruments, which means there will not be an overall increase in the total debt stock.
“This is in line with our liability management strategy, which seeks to re-profile our public debt stock, extend tenors, reduce short term rollover pressures, and lower domestic interest cost. Additionally, this issuance will further help improve our foreign exchange reserves by over US$2billion and further support the cedi,” he noted.
This move and the tax reductions, the bankers contend, have injected a significant amount of confidence into the economy, paving the way for more investments.
“This effort to re-profile the debt to achieve a proper yield curve over the period is a very good effort and probably the one that will have the most profound effect on the economy,” Mr Marchal noted.
Mr. Oti-Mensah also noted that the government has indicated and gone ahead to do things to reduce interest rates, it is good and the industry likes it.
“We have seen the intent with the prime rate dropping by 200 basis points and that has seen Treasury Bills reducing further. We have also seen the exchange rate gaining value over the other currencies,” he noted.
Cumbersome tax exemption refund guidelines
Mr. Marchal noted that despite the gains chalked by the government in such short time, the introduction of a rule with guidelines for all companies to pay their full taxes, including those who have exemptions, and later file for refunds could cripple all the achievements.
“This new rule is very cumbersome. When you want to be business-friendly let’s be business-friendly. If your purpose is to curb fraud, let us put controls; but, this tax exemption refunds, if delayed, because of administrative issues, will cripple the whole value chain, because those monies will be expected to be used in other aspects of the business.
Any delay will create a big mess. Let the rules be simple. If there is a tax to be paid, let it be paid, if there is no tax to be paid, it shouldn’t be paid. I think this tax refund guideline is creating contradictory signals,” he said.
Domestic borrowing
According to Mr Oti-Mensah: “If the government is not borrowing from the local market, it gives banks the opportunity to do business. It used to be that banks and financial institutions will take deposits and place them in Treasury Bills. Now, we have to go to the real sector and do business and, for me, that can only impact the SMEs.”
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