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High fiscal deficit unattractive for long term bonds – Razia Khan
Government would have to work to reduce its fiscal deficit in the short to medium term else risk investment ditching its long term bonds.
This is the caution from the Chief Economist for Africa Global Research at Standard Chartered Bank, Razia Khan.
According to her, the government would need to readjust its debt management strategy at the point where it realizes investors may not be interested in buying into the bonds it issues.
“What will bring about that kind of behaviour is when they realize that the government of Ghana is not succeeding in reducing the size of the fiscal deficit. What it means is that it is going to run such a high deficit and it will have to start printing money to be able to finance that and in that environment, you don’t want to buy a 5, 7 or 10-year bond. But rather a 91-day Treasury bill,” Razia Khan remarked in a meeting with journalists in Accra.
The continuous rise in Ghana’s fiscal deficit has been cited as a major drawback to achieving set economic targets.
The Finance Minister, Ken Ofori Atta in his midyear budget review adjusted the targets for the fiscal deficit which refers to the difference between the government’s revenue and expenditure for the year.
According to him, the downward revision from 6.5 percent to 6.3 percent of GDP is apparent on the back of a lower than expected revenue for the first half of the year.
Meanwhile, the NPP administration is seeking to cap the country’s fiscal deficit between 3 and 5 percent of GDP.
Though cabinet has approved this plan, it is yet to be sent to Parliament for it to be passed into law.
Madam Razia Khan, however, commended the strategy in dealing with the debt which is currently estimated above 70 percent of GDP.
She, however, believes Ghana will have to deepen efforts to retain investor confidence.
“The debt management reforms really speak for themselves…the question that need to be asked is if these reforms if they were waived will become less effective. What will cause the government to become much more reliant on very short term issuance of debts? It will only be of there were many investors whether local or foreign who are willing to buy the longer term maturities,” she asserted.
“Only in the event of an investor revolt; refusing to buy a longer term debt in which there would that be the need to reverse the debt management. The debt management has been good but what is necessary is what happens to the fiscal policy,” Madam Khan added.