The government‘s consideration to return to the domestic bonds market this year has been vehemently opposed by a financial expert.
Dr. Seyram Kawor, a senior finance lecturer at the University of Cape Coast Business School argues that it is too early for the government to return to the domestic capital market.
Unsustainable debt levels which limited the government’s fiscal space in addition to other economic challenges such as soaring inflation, and depreciating currency among others forced the former administration to restructure its debt amid an IMF program.
Although the exercise was painful, it was necessary to save the economy which was on the verge of collapse. Over 80% participation was achieved. The exercise has halted activities on the domestic capital market even after the DDEP ended in 2023.
However, the third review of the country’s US$ 3 billion IMF Extended Credit Facility has revealed that the government intends to issue new bonds in the second quarter of this year.
“The authorities intend to gradually resume domestic bond issuances in 2025,” part of the review indicated.
Experts explain that the quest to return to the domestic bonds market post the DDEP is a result of fiscal constraints as the country has also been locked out of the international capital market.
The only available option is the short-term market where the government has been borrowing at a very high rate.
But Dr. Seyram Kawor contends that despite the fiscal constraint the timing is still wrong for the government to stage a return to the market in which investors painfully received haircuts few back.
In his view, investor sentiments for the domestic capital market cannot be properly gauged. He recommends that the government should rather focus on accumulating reserves in the sinking fund to meet the next payment obligations under the DDEP.
Moreover, the finance lecturer says the government must also prioritize fiscal discipline while ensuring improved revenue mobilization through tax compliance. This, he believes will better prepare investors by boosting their confidence in the market.
“The timing as of now for me is too early for the government to start looking at the bonds market especially the domestic bonds market,” Dr. Seyram Kawor maintained in an interview monitored by The High Street Journal.
For him, the next two years should be the most appropriate time for the government to stage a return to the market after nurturing investor confidence and enhancing fiscal discipline.
“Government should wait for at least two years. In these two years we make determination about the entire plan for debts that we want to raise over the period. Government will need to specify what exactly they are going to use the money for and investors will now make a determination as to when they will receive their coupons when they are due, ” he recommended.
Such an early return to the market this year, Dr. Kawor says will further deepen the debt situation of the country. This, he says will translate to high interest payment hence deteriorating the already narrowed fiscal space.
Source:thehighstreetjournal.com
