Apart from 2011, when stable macroeconomic conditions forced interest on a similar bond to drop to 18.5 per cent, Mr Terkper said, none of the bonds issued by the country had attracted rates lower than 20 per cent.

At 19 per cent, he said, it was prudent and economical for the government to borrow through a longer-term bond which  could be used to retire current maturing debts that were issued at rates higher than the rate of the current bond.

The minister was speaking to the Daily Graphic in an interview in Accra yesterday days after the ministry’s maiden 10-year bond was oversubscribed by over 200 per cent.

Although the government planned to raise GH¢200 million through the issue, it accepted bids totaling GH¢438 million after investors submitted bids that amounted to GH¢726 million.

Mr Terkper explained that the decision to accept bids in excess of the initial GH¢200 million was strategic and aimed at ensuring that the country got value for money through measures that included refinancing, high interest treasury bills and bonds, all aimed at building a buffer to finance the 2016 budget and that of the first quarter of 2017.

Those were necessary, against the background of the Bank of Ghana’s zero financing of government expenditure, he added.

Redeeming treasury bills

Although some market watchers saw the oversubscription as a sign of rising confidence in the economy, others  were of the view that the interest rate was too high.  

Mr Terkper, however, disagreed, explaining that it was wrong to judge the essence of a bond by looking at just its issue price.

He explained that beyond the favourable nature of the bond’s rate to the economy, proceeds from recent bonds were being used to replace short-term debts, thereby eliminating the habitual roll over of such securities.

“If I am going to use part or most of the 10-year bond that I issued now to take off treasury bills that are above 19 per cent, then I am making savings in terms of the nation’s debt service commitment. I am doing two things — I am going to stop rolling over treasury bills and bonds at 24 per cent and I am going to use the sinking fund to pay them off at a lower rate of 19 per cent over a longer period.

“In essence, I will give myself 10 years, during which I could have been rolling over the shorter-term bond at 24 per cent because I did not have a mechanism of buying back,” he said.

The successful use of part of the bond proceeds to retire maturing short-term debts, the minister explained, would be the first in years that the government was redeeming its debts in treasury bills and bonds.

 “What this means is that in the past whenever some treasury bills and bonds reached their maturity stages, the government rolled them over, using the same or higher rates.  

“This was costly to the economy, as it put pressure on the private sector. What is the point in rolling over a 91-day instrument at 24 per cent when it turns into a long-term instrument at 24 per cent because of the lack of a mechanism to redeem them? We are now able to redeem or refinance at a lower interest rate,” he said.

Given the implications of debt and its servicing, Mr Terkper said, the government was now working at reducing the rollover in order to cut down cost and support the private sector by creating a spacious environment for interest rates to fall.

A combination of the sinking fund and a reduction in the budget deficit has also resulted in more loans for the private sector at lower cost because the government is borrowing less.

 He explained that the recent inflow of liquidity into the market had started bringing interest rates down, as witnessed in the recent bond issue.

As a result, he said, the Ministry of Finance was confident that things would continue to improve in the economy for the benefit of businesses and the public at large.