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IMF blocks issue of energy sector bond

  • POSTED ON: October 10, 2017
  • SOURCE: Citifmonline
  • CATEGORY:

Citi Business News has gathered that the delay in issuing the Energy Sector bond is due to an inconclusive meeting with the International Monetary Fund on the categorization of the bond.

An earlier statement from the Finance Ministry indicated that, government will issue the 2.5 billion dollar energy sector bond in September this year, but that is yet to happen.

At the last meeting with the IMF, the board of the Fund insisted that the 2.5 billion dollar bond should be issued as sovereign debt. By this, the bond would be deemed as an amount borrowed by the government of Ghana.

However Citi Business News understands that the government economic team made a counter argument against the proposal, explaining that the debt is on the books of State Owned Power companies with strong financial statements that can support the issue of such a bond.

In addition, the Finance Ministry argued that, the cost of the bond may increase if it is captured as a sovereign debt.

The government economic team is currently meeting the IMF board and the subject is expected to be high on the agenda. But as government delays in issuing the bond, what are the effects on banks whose ratio of Non Performing Loans increased due to the debt.

The Managing Director of Zenith Bank, Henry Oroh, in August this year, during the Energy Policy Summit, outlined the impact.

“The energy debt has been a major problem for the industry. It’s been there for four years. It’s quite monumental, 2.5 billion dollars is quite big. As long as those debts are there it becomes a drain on liquidity of banks. Our capacity to support the government and the private sector diminish by the fact that those debts remain unpaid,” he told Citi Business News in August during the Energy Policy Summit.

Meanwhile the Volta River Authority (VRA), which bears a greater part of the debt, is also calling for a speedy issue of the bond to save the power generator.

Former Chief Executive Officer and current Board Chairman of the authority, Kweku Awotwi describes the bond as critical.

For the banks, the timely issue of the bond will not only reduce the Non Performing Loan portfolio in the financial sector, but trigger a series of economic activities.

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