In a bid to defray Ghana’s huge accumulated debt, government has announced the establishment of a fund called the “Sinking Fund” to help it achieve that goal.
[contextly_sidebar id=”OgrSJVFn0CaSE0uhpq4HukbjGTrznHLx”]The fund is to enable government to start paying Ghana’s ten year bond on an annual basis.
According to the Minister of Finance, Seth Tekper, the repayment will be spread over time to enable the country have a financial discipline of paying for principal and interest on standard loans borrowed.
The move has been necessitated by a mechanism in the petroleum fund which allows for a cap to be placed on the stabilization fund while the excesses will be used to establish either a contingency fund or part will be used to pay debts only.
Its part of fiscal discipline
Speaking at the Stakeholders Forum on the IMF Program, Mr Seth Terkper said the move is part of a fiscal discipline regime to manage the country’s debt stock.
He explained that “when we borrow from CDB, EXIM, all the EXIM US or China, what we do is that we pay the principal and the interest. Now we have found a mechanism in the petroleum fund, which says that when you cap the stabilization fund, the excess can be used for two purposes only.”
It’ll be funded with excess cash from contingency fund
“The first is to use to establish the contingency fund which we started to establish under the constitution…we have put boulders amounts in it. The second one is that you can use part of that excess to pay down only debts and another feature is that when Bank of Ghana finances, it does not pass dividends directly to government, the dividends is used to pay down borrowing from the bank,” he added.
The Finance Minister indicated that government intends to “use that excess amount to establish the Sinking fund to start paying down our ten year bonds on an annual basis. When we do that, then we spread the repayment over time then we get the discipline of paying for both principal and interest.”
“We know there is some controversy on this but the Philippines do it, our colleagues in Cameroon do it, Gabon do it,” he added.
Gov’t debt stands at $88.2 billion
Government has been widely criticized for its growing appetite for borrowing.
According to the Bank of Ghana, as at March 2015 the country’s current total public sector debt stock stood at GH¢88.2 which represents 65.3% of Ghana’s Gross Domestic Product (GDP).
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By: Godwin Akweiteh Allotey & Lorrencia Nkrumah/citifmonline.com/Ghana
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