The issue, the third since the beginning of the year, will target GHø400million from local and foreign investors. The funds will be used to roll over maturing debts and support implementation of the fiscal budget.
Government's expenditure plans have been throttled by a shortfall in domestic revenues- as well as grants from Western donors -in the first four months of the year. This has led to proposals from the Finance Ministry for additional taxes to be introduced to close the gap.
Thursday's bond will also be sold against the backdrop of signals by the BoG for an increase in interest rates tame consumer inflation, which touched a three- year high of 10.6 percent in April. The BoG has traditionally aimed to keep inflation below 10 percent.
Government's three-year borrowing costs inched up by 0.2 percentage points to 16.9 percent in March, when the last auction of three-year bonds was held. At last week's auction of short-term bills, 91- and 182-day bills recorded a marginal gain in yields, rising from 22.97 percent and 23 percent to 23.03 percent and 23.04 percent respectively.
BoG Governor Henry Kofi Wampah said at last week's monetary-policy committee (MPC) press briefing- where the policy rate was increased by one percentage point to 16 percent- that domestic economic conditions were "challenging" in the first four months of the year, with grim consumer and business sentiment indicators accompanied by a slowdown in the pace of economic activity.
The Composite Index of Economic Activity (CIEA), the bank's main gauge of the economy, contracted at an annual rate of 0.6 percent in March, he revealed.
The impact of the slowdown, which dampened company profits and imports, was a shortfall in tax revenues by about GHø700million compared to the target. External grants form donors, which mainly go to support capital expenditure, also fell short or target by 38.3 percent.
A further risk to the outlook is the steep decline in gold price this year, which threatens export earnings and the accumulations of reserves to defend the cedi against demand pressures.
The currency has slumped by 2.3 percent this year, and the BoG's reserves dwindled by US$200million to US$5.2billion between January-April.
Given the dismal outturn in the first four months of the year, Government will impose additional taxes on imports, increase excise duties and re-introduce the fiscal stabilisation levy to raise new revenues for meeting expenditure commitments, Finance Minister Seth Terkper said last week.
Government will further cut energy subsidies by adjusting utility tariffs to reflect cost-recovery rates. This is expected to partly repair the ailing finances of the main electricity companies.
Source: Business & Financial Times
