Economist, Dr. Lord Mensah is urging the government to go in for concessionary loans instead of commercial loans from the Eurobond market.

This comes after plans by government to raise as much as US$1 billion through the sale of sustainable bonds by July this year.

According to the Minister of State at the Ministry of Finance, Charles Adu Boahen, a portion of the proceeds from the sale of the sustainable bonds would be used for education and health-related infrastructure projects in the country.

The sale, likely to be a mix of social and green bonds, would come months after Ghana sold the four-year zero-coupon debt to international investors as part of a US$3.025 billion Eurobond deal that also included 20-year, 12-year and seven-year securities.

Dr. Lord Mensah however believes this move will add up to the country’s already ballooning debt level and damage the country’s reputation before foreign investors.

He noted that, “Whatever the case may be, they are all debt instruments for which government debt will still be increased. Although the returns are not going to be immediate, it’s still a debt.”

“And then also, looking at the dynamics of how we’ve been repackaging our debts over the years, it shows a sign of the country being desperate for funds. It would show a signal to the investor that we are desperate for money. We shouldn’t think it’s a sustainable bond and therefore we’ll have a lower coupon rate for it. It’s still going to attract the necessary rate that it’s supposed to be.”

Although Dr. Mensah is of the view that the government is ready for this arrangement, he believes the country will be in a better position of managing its debt by going in for loans with more generous terms.

“If you listen to our debt threshold, clearly, we’re inching closer to the distance to default. So this is the time I was thinking we would have been careful as to how we borrow from the international market. Because if you are borrowing and it turns out that you have more foreign debt than local debt, then it puts the country into quick distress. That is why the World Bank keeps telling us to tone down on our non-concessionary loans to have them at a lower cost. We should answer that question.”