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Diverting US $250m Into A Private Acct....Gov't Replies Bawumia

Posted : May 10, 2016

Government’s attention has been drawn to a statement by Dr. Mahamudu Bawumia, the running mate to the Flagbearer of the New Patriotic Party, that Government is diverting US$250 million of the US$1.0 billion Eurobond issued last year to the Ghana Infrastructure Investment Fund (GIIF), which he claims not in operation, to a private account in a private bank, for election campaigns ahead of the November polls.


The Government wishes to state unequivocally that, the statement is factually wrong, technically deficient and gives a wrong impression to both Ghanaian and international investors and development partners.


THE GIIF ESTABLISHMENT


We note that the passage of the Ghana Infrastructure Investment Fund Act, 2014 (Act 877) established a Fund which is owned by the Republic of Ghana to mobilise, manage, coordinate and provide financial resources for investment in a diversified portfolio of infrastructure projects in Ghana for national development.


Section 5 of the Act provides for the sources of money for the Fund, which includes a portion of the Annual Budget Funding Amount (ABFA) from of the oil revenue; and moneys borrowed and raised from local and international capital market or from its affiliates. Further, as noted, a portion of the Bond proceeds was given as seed money to GIIF.


Furthermore, the Fund is mandated by Section 3 of the law to invest in, purchase, maintain and realize any investment of any kind.


Consequently, GIIF is set up as Sovereign Wealth Fund and it’s a Statutory Fund just like the District Assemblies Common Fund (DACF), Ghana Education Trust Fund(GETFund) and the National Health Insurance Fund (NHIF) and is by law operationally independent.


The Funds of GIIF are, therefore, not to be comingled with central government funds.


The Board of the GIIF has been inaugurated with the Ag. CEO in place the Fund is in operation. The administrative processes for its full operation has begun and an Ag CEO has been appointed.


Following from the above facts, a key strategy of GIIF is to use its resources to leverage investor funds for accelerated infrastructure development. It is in line with this that the Government allocated an amount of US$ 250.0 million as a seed fund for the GIIF in 2014 and not in 2015 as stated by Dr. Bawumia.


Accordingly, the Board which has the powers under Section 3 of the Act to manage and invest contributions made to the fund and to reinvest into the fund to generate returns could put its resources in a commercial bank for the sole purpose of investment.


Section 3 of the Act also confirms the provision in Section 21(2) of the Financial Administration Act that makes provision for the investment of public money in securities.


Consequently, the funds which goes into GIIFs Account in any Commercial Bank, cannot be misapplied for election purposes. Rather, any idle fund will earn interest to support infrastructure development of the country.


It must be noted that Public Funds do not only reside in the Bank of Ghana. There are public funds in Commercial Banks and International Financial Institutions where necessary, acting as agents for the Bank of Ghana. This is all accounted for as part of Public Funds.


USE OF EUROBOND PROCEEDS


In a related development, Dr. Mahamudu Bawumia is mixing operations of the Eurobond funding in both 2014 and 2015.


It may be recalled that in 2014, Parliament gave approval for Government to source for a Eurobond to finance infrastructure budget of Government in 2014. Considering that the GIIF is now a special vehicle for the purpose of developing infrastructure budget of Government, the Eurobond financing of the 2014 infrastructure budget was the most appropriate thing to do.


The 2015 Eurobond of US$1,000.0 million is for refinancing of domestic debt purposes only. This amount was on the back of a World Bank guarantee (US$400 million). The guarantee and the amount was solely for refinancing of domestic debt. Nowhere in the prospectus or the policy statements of Government has the issue of budget financing been linked to it.


We may recall that as part of the IMF Extended Credit Facility Programme, The Bank of Ghana would no more finance Government budget deficit. This is what we call the zero financing of the budget by the Central Bank. Consequently, Government’s strategy to manage the financing of the budget is to explore alternative financing instruments. One of the strategies is the earning of interests on Government’s own idle funds in the Banks. Following from this, a number of Request for Proposals (RFPs) and stakeholder engagements have been held to implement this strategy.


CONCLUSION


In conclusion, we wish to assure all Ghanaians that the US$250 million seed money to GIIF lodged by the Board with a Commercial Bank is safe and has already started bearing interest to the idle Fund.


It must be noted that Ghana now sources for some of its financing from the international capital market. The market has stringent rules and international law backing these transactions.


It should be note that misinformation of Ghanaians and the international community in this manner, creates uncertainty in the minds of investors and could damage the appetite for Ghana bonds and such misinformation should cease.


As we strive to develop this dear nation of ours, it would be important to either cross check facts or understand the civic responsibility of every Ghanaian to ensurethat the best interest for the nation is maintained at all times. – FINANCE MINISTRY

 
Read Bawumia's Story


Gov’t Diverts $25m Eurobond Cash To A Private Bank And Borrows Back With Interest – Bawumi Alleges


Dr. Mahamudu Bawumia, NPP Vice-Presidential candidate, has revealed that the NDC government has transferred US$250million of the latest Eurobond proceeds, which were secured at an unbelievably high rate, to a private bank.


They have in a shocking move turned around to borrow back that amount through treasury bills, thus, paying interests again on the same money to the Private Bank.


Dr. Bawumia made this disclosure during a lecture at the Accra Polytechnic on Thursday on the topic, Youth Unemployment – Causes and Solutions.


While touching on the reckless borrowing and improper management of Ghana’s debt stock under the NDC administration, Dr. Bawumia stated “I want to provide one example of the recklessness and incompetence I am talking about. Ghana borrowed US$1 billion through a Eurobond issue in 2015. Government allocated US$250 million of this borrowed funds to the Ghana Infrastructure Investment Fund (GIIF). This Fund is not yet operational. These Funds were initially deposited at Bank of Ghana where they should be. Notwithstanding the fact that the GIIF is not operational and there are no projects for the GIIF to implement now, the Government unbelievably transferred the $250 million from the Bank of Ghana to GIIF’s account at a private Bank. With no project to execute, These Funds have now been lent to government through the purchase of treasury bills! This is unbelievable”.


The former Deputy Governor of the Bank of Ghana was puzzled at how government could go and borrow funds on the international market at an unbelievably high rate and then give those funds to a third party so it can borrow it back at over 20% on the domestic market.


“How can Government go and borrow funds from the international capital market at 10.75%, give the funds to another party and then borrow those same funds at over 22%!If this is not causing financial loss to the state, I don’t know what it is. It is an example of incompetent economic management”, he stated.


Dr. Mahamudu Bawumia, who has on countless occasions exposed the government over its handling of the economy and has been vindicated by other bodies on several occasions for his analysis on the economy, wondered if this latest fishy scheme was another way of siphoning money to lubricate the NDC’s campaign machinery ahead of the elections this year. Worried about this trend, he has called on the government to immediately come clear on the issue and provide answers to the Ghanaian people.


“Who authorized the movement of the $250 million from the Bank of Ghana to the Private Bank? Who is the interest accruing to? If GIIF is not operational, why was this transfer done? Does the government understand that the money supply would increase? Is this a way to finance the Government’s election campaign? We need answers quickly on this and the Minister of Finance should explain to Ghanaians”, he added.


Dr.Bawumia explained that as a result of the reckless borrowing and improper management of Ghana’s debt, huge resources which should have been invested in infrastructure and social services now have to be used for interest payments.

 
Don’t go for another eurobond


Dr. Bawumia while speaking on the precarious debt situation Ghana finds itself in at the Accra Polytechnic, cautioned the government against going for another Eurobond this  year, as it would only deepen the troubles the economy already finds itself in.


“With the debt to GDP ratio at 73%, i.e. beyond the threshold of debt sustainability, what is amazing is that the government wants to issue another sovereign bond of some US$1billion this year to add more to the country’s debt burden. My humble advice to the government is that “please don’t”.


The last Eurobond was issued at some 10.75% even with a World Bank guarantee!  You will only get the economy into more trouble and create more unemployment. When you find yourself in a hole please stop digging!” he stressed.


Dr. Bawumia also pointed out how the unbridled borrowing by the NDC continues to harm business and job growth in the economy.


“With such large scale borrowing, government is crowding out the private sector which is unable to borrow to grow their business. Risk free Treasury bill rates are around 25% (up from 10.6% in 2011) and bank lending rates are on the rise because of excessive government borrowing. Lending rates are now 35 percent.”


“This development means it has become virtually impossible for business to borrow in the financial sector to grow and produce more. Government has today become the biggest competitor to private business and by its actions squeezing the little life left in them”, he noted.
 
 
Source: Peacefmonline.com/Ghana
 

 

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