Afreximbank loan: government’s decision to establish escrow account prudent, but needs parliamentary approval – Associate Professor of Finance

Associate Professor of Finance at Andrews University in Michigan, USA, Dr. Williams Peprah, has described government’s decision to establish an escrow account as a prudent cash management principle that will enable settlement of the interest on the Afreximbank loan, which is due in six months’ time.

$37 million of the $750 million loan has been set aside to pay the lender when it is due, to avert any default.

This has sparked debate, with the Ranking Member, Finance Committee in Parliament, Cassiel Ato Froson, questioning the legality of establishing an escrow account, insisting it was not part of the initial finance agreement approved by Parliament.

A Deputy Finance Ministr, Dr. John Kumah, said he was surprised that Mr. Forson thought “liability of government under this facility only kicks in after 3-years”.

The Minister added that during the term of the National Democratic Congress, “escrow debt service accounts were established for many projects including; a) the CDB Facility for Ghana Gas, b) Kumasi Market Phase 1 and c), the Kasoa Interchange Project”

But speaking to Joy Business Dr. Peprah said government did nothing wrong by establishing the escrow account.

However, he wants Parliament to approve the amendment, paving the way for the establishment of the escrow account.

Ghana government is trying to be prudent in terms of cash flow management to be able to meet the interest payments which will be due in the next six months from the date that it was drawn down. This gives an indication that government is aware that the short fall of currency, especially dollars in the system [circulation] is not going to end anytime soon”.

“So the establishment of the escrow account is to help government manage its cash flows to be able to meet the payment [interest], in other words not to default on the interest payments”, he explained.

“Legally, government may have to go back to parliament if they want to put in this escrow account in place. But I’m sure government is trying to be more prudent in its cash flow management and to assure Afreximbank that it will pay back the $750 million. It will be very suicidal if government fails to pay the interest due in six months’ time”, he added.

Dr. Peprah further said government may have to defer some of the projects that the monies are to be used to finance to make room for the $37 million which has been set aside.

“Moreover, if government is able to collect its revenue as planned [meet revenue target], we’ll get the money to be able to put it back or put it at a place where we took the $37 million from”.

BoG warns inflation may peak later in 2022 due to threat to outlook

The Bank of Ghana (BoG) is forecasting a peak in inflation later this year before trending back towards the medium-term horizon.

According to the Central Bank, this is due to the risk to the inflation outlook as result of increased commodity prices, particularly crude oil.

“The rest are heightened supply chain disruptions, and the over 20% increase in utility tariffs set to kick in from 1st September, 2022”.

The warning was contained in an address by the First Deputy Governor of the BoG,  Dr. Maxwell Opoku Afari read on his behalf by Dr. Philip Abradu Otoo, Director of Research at a Financial Literacy Workshop for Journalists in the Northern Zone of Ghana.

The two-day training workshop was organised for selected Business and Financial Reporters in Tamale, Northern Region.

It was under the theme:  “Sustaining the Recovery: The Role of the Journalist in Building Confidence”.

Implications

It is not clear for now what the forecast by the Central Bank will mean for the current rate of inflation pegged at 31.7% in July 2022.

Some observers have said it could show that the trend will go up further in the month of September and October 2022.

By this, some have observed whether if the Monetary Policy Committee of the Bank of Ghana will hike the policy rate again to deal with the fresh challenge.

The Bank of Ghana recently justified the increase in the policy rate to 22% because of threats to the inflation rate outlook.

Financing government

The First Deputy Governor noted that the Central Bank’s overdraft to government has helped close the financing gap as reflected in the Mid-Year Budget review. 

This challenge, the Dr. Opoku-Afari, said is as a result of the access to the international capital market and given the constrained domestic financing.

“It is expected that the ongoing policy discussions with the International Monetary Fund (IMF) will help address the underlying macroeconomic challenges, restore fiscal and debt sustainability, and re-anchor sustainable balance of payments”.

Banking sector development

The First Deputy Governor was quick to add that the remarkable resilience of the banking sector over the last two=year period could be attributed to the comprehensive financial sector reforms that took place before the Covid-19 pandemic struck in 2020.

“The sector has since remained liquid, profitable, and well-capitalised”, he noted.

Dr.  Opoku-Afari added that the industry’s measure of solvency, the Capital Adequacy Ratio, has remained well above the revised regulatory 13% prudential limit

Training for Journalists

Dr. Opoku-Afari highlighted the role of the media “during periods of heightened uncertainty when all kinds of news including fake news are rife on social media, even at times within mainstream media”.

“The spread of such misinformation has the potential to jolt financial markets and create panic among the general public with dire implications for financial stability”, he added.

The training workshop was aimed at equipping journalists with a better understanding of issues including monetary policy formulation, inflation targeting, forex trading and the foreign exchange market, balance of payments and the BoG’s eCedi.

The training workshop is part of efforts by the Central Bank to build a strong pool of financial and business journalists who will help the public to appreciate and understand its programmes and policies.

The participants at the workshop were drawn from the Northern, Upper East, Upper West and East Regions.

The Central Bank in June 2022, organized a workshop for journalists in the southern zone

"We are ready to help Ghana stabilize economy' - IMF boss after meeting Ofori-Atta

The Chair and Managing Director of the International Monetary Fund (IMF), Kristalina Ivanova Georgieva-Kinova, says her outfit is willing to assist Ghana to put the country’s economy on a better footing.

The Bulgarian economist made this known in a tweet on Friday, August 26, 2022.

According to her, the IMF’s decision to support Ghana stems from a ‘constructive meeting’ she had with Finance Minister, Ken Ofori-Atta and his team.

The meeting, she disclosed bordered on the challenges of Ghana’s economy and how to address them.

“Constructive meeting with [Ghana’s] Finance Minister Ofori-Atta & his team on Ghana’s economic challenges and the way forward.

We are ready to do our part to help the authorities stabilize the economy, lay the ground for stronger growth & help the most vulnerable”, the tweet said. 

The assurances from the IMF Chair comes at a time when the country’s economic outlook appears to be in distress.

Currently, Ghana’s currency, the Ghana Cedi, is consistently depreciating against the US dollar at a fast rate which many citizens are lamenting about.

Inflation is also on the rise with the cost of living also on the high.

These factors, were amongst a list of considerations which compelled Ghana to seek assistance from the IMF on July 1, 2022.

In a statement by the Information Minister, Kojo Oppong Nkrumah, the move to go to the IMF is to help the global lender assist government in implementing some economic recovery prorgammes.

Meanwhile, the opposition National Democratic Congress (NDC), and other civil society organisations have criticised Ghana’s request for an IMF bailout, describing it as an imprudent measure.

According to the critics, the country’s economic woes are based on the failure of government to deal with its internal mismanagement and corruption, and thus support from the IMF will amount to nothing.

Over 1,400 workers of GN Savings and Loans to lose their jobs

It is estimated that over 1,400 workers of GN Savings and Loans would lose their jobs in the coming weeks.

The expected dismissal comes at the back of the revocation of the license of the company which was downgraded from a Bank to a Savings and Loans earlier this year for failing to meet the new minimum capital requirement for banks.

Government has appointed a receiver to lead the process of payment of depositors and debt recovery.

On Friday, August 16, 2019, the Bank of Ghana (BoG) announced that “the Bank of Ghana has reached the conclusion that GN is currently insolvent under section 123 (4) of the Banks and SDIs Act, 2016 (Act 930), being in breach of its key prudential regulatory requirements. Its Capital Adequacy Ratio (CAR) is currently -61%, in breach of the minimum required of 13%. It is also facing a severe liquidity crisis with numerous complaints received by the Financial Stability Department of the Bank of Ghana from aggrieved customers who have been unable to access their deposits with the institution for the last several months. What is more, it has consistently failed to meet the minimum cash reserve requirement of 10% of its total deposits, since the end of the first quarter of 2019.

GN’s shareholders have failed to restore the bank to the required regulatory capital and liquidity levels in spite of long-standing promises that new capital was expected from foreign investors.”

While the company was operating over 240 branches across the country with presence in almost all districts in Ghana, sources at the company say over 1,400 workers may lose their jobs.

Most branches may be closed down, the source added.

Cashiers, mobile bankers, drivers, security and cleaners may be the casualties.