The fast depreciation of the Cedi and the high inflation rate are expected to be the two key factors which will account for investors demanding a higher coupon rate on Tuesday\u2019s bond issue.<\/p>\n
The Bank of Ghana (BoG) will raise an amount of GHC 400 million in the issue.\u00a0It will be the fourth 3-year bond issued in 2014.<\/p>\n
According to the Bank of Ghana\u2019s bond issuance calendar for the last half of this year, government expects to raise about GHC 17.4 billion in the short to medium term bonds.<\/p>\n
Thursday\u2019s bond will be the last but one 3-year bond issued for this year.\u00a0The next one will be issued in October when another GHC 400 million will be raised.<\/p>\n
Government has in July alone raised about GHC 2.56 billion through treasury bills and 1 year and two year notes.<\/p>\n
Tuesday\u2019s bond issuance would bring this month\u2019s government\u2019s securities to a total of GHC 2.96 billion.<\/p>\n
It has become critical at this time after Finance Minister Seth Tekper asked\u00a0Parliament to spend an extra GHC 3.1billion before the year ends.<\/p>\n
But will this bond attract investors considering the country\u2019s economic challenges? Emphatically yes! If history is anything to go by, this bond will be oversubscribed as the previous bonds.<\/p>\n
The coupon rate for the April 3-year bond was at a high rate of 25.48% while the last bond in May was 24.44%.<\/p>\n
The coupon rate for Tuesday\u2019s bond will depend on a number of factors.\u00a0These include the yield on the last issued 3-year bond and other existing similar bonds.<\/p>\n
Also, investors will require compensation for the high inflation rate which wipes away their purchasing power.<\/p>\n
Inflation rate is currently at 15percent. Foreign and non-resident investors will also demand high premium for the high rate of depreciation of the cedi.<\/p>\n
With these, the coupon rate may not go below 24 percent.\u00a0Apart from investors enjoying the high returns on their bonds, the country faces a number of consequences.<\/p>\n
Government will have to pay high interest rates which means higher spending.\u00a0The interest rate arguably becomes the baseline for that three year loan you will take from a commercial bank.<\/p>\n
Government now competes with the private sector for funds that should have been available to companies, shops, SMEs and individuals.<\/p>\n
Economist and Analyst, Kofi Arkaah is warning that this is not in the best interest of the country.<\/p>\n
According to him, \u201cthere is going to be more macro economic instability because basically, people and investors are not going to be willing to make long term investment. They are going to be short term investors and traders which means there is going to be more volatility and instability in the system.\u201d<\/p>\n
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By: Kwaku Anim Boadu\/citifmonline.com\/Ghana
\nFollow @boaduanim<\/a>
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