Ghana Finance Chief Looks at Tax Base to Lessen Debt Risk

(Bloomberg) --

Ghana’s efforts to raise domestic revenue are beginning to bear fruit and will help the country to be less dependent on debt, Finance Minister Ken Ofori-Atta said a day after the nation sold $3 billion in Eurobonds.

West Africa’s second-biggest economy received about $15 billion in offers for the debt issuance that included a tranche of sub-Saharan Africa’s longest-yet Eurobond with an average life of 40 years. The sale would increase Ghana’s debt burden, which the International Monetary Fund estimated was 63% of gross domestic product at the end of 2019. The lender has warned that the country is at high risk of distress.

Ghana Finance Chief Looks at Tax Base to Lessen Debt Risk

The debt figure includes commitments made toward the reform of Ghana’s financial and energy sectors, Ofori-Atta said in an interview with Bloomberg TV on Wednesday. The debt level would be 58% of GDP when these pledges are not factored in, he said.

“We look to bring that down,” Ofori-Atta said. Last year, Ghana started a restructuring of its tax authority to target domestic revenue of about 18% of GDP, from 12.5% of GDP at the moment, he said.

In “these last three months we had phenomenal results,” he said. Reaching the tax goal would “really move us forward to support our infrastructure drive, and therefore relying less on debt.”

Ghana will not return to international debt markets before 2021, he said.

The country has so far escape the negative impact of the coronavirus on most commodities as prices for gold and cocoa, two of its three main exports, are surging. The country also ships oil abroad.

Ghana is expecting to further diversify sources of foreign income once a continental free-trade agreement kicks in from July. The African Continental Free Trade Area’s secretariat will be based in Accra, the capital.

“We’re banking on Ghana becoming a regional hub with regards to financial services, aviation and logistics, trade,” said Ofori-Atta. “Once we get the increase in exports in other areas, we should do very well.”

Mining IPO

A plan to sell $750 million of shares in a mining royalty fund will probably proceed next month, he said. The fund will be listed in London and the local bourse and will pay dividends from the levies that Ghana derives from mining agreements.

“It will further go to strengthen our foreign-exchange reserves,” said Ofori-Atta. “We are confident and we are targeting March for the IPO.”

Ghana’s gross international reserves were $8.4 billion at the end of 2019, the equivalent of four months of import cover.

©2020 Bloomberg L.P.

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