$250mOn Thursday May 5th 2016, I delivered a lecture at the Accra Polytechnic on “Youth Unemployment, Causes and Solutions”. As part of the lecture I pointed out that the reckless borrowing of this NDC government (with Ghana’s debt increasing from GHc9.5 billion in 2008 to GHc 99 billion at the end of 2015) as well as poor debt management was one of the causes of unemployment because it has imposed a high interest burden on the economy which has taken away large financial resources that could have been used to deal with unemployment. Furthermore the resulting high
interest rates has reduced investment, crowded out the private sector, and resulted in a steep decline in economic growth.

As an example of the reckless management of Ghana’s debts, I pointed out that this NDC government has transferred some $250 million of the proceeds from Ghana’s 1 billion Eurobond which was borrowed at an interest rate of 10.75% to a private bank. The private bank, (UBA) in turn used these funds to purchase treasury bills, i.e. lent to government at an interest rate of more than 20%. The funds were ostensibly transferred to or “placed” at UBA on behalf of the Ghana Infrastructure Investment Fund (GIIF). The instruction to the Bank of Ghana for the transfer of these funds came from the Ministry of Finance.

In my lecture I pointed out that this transaction was wrong and symptomatic of the mismanagement of this economy by the government (I will return to this below).

Yesterday (9th May 2016), the Minister of Finance responded to my allegation. The Minister’s response basically confirmed what I had revealed. There is no denial that the $250 million was placed at UBA and secondly, there is no denial that the funds were also used to purchase Treasury bills. Unfortunately, the Minister of Finance
however sought to defend this transaction as normal practice. The main arguments of the Minister are as follows:

– Section 5 of the GIIF Act provides for sources of money for the Fund which includes a portion of the ABFA from the oil revenue and moneys raised and borrowed from the capital market

– The Bond proceeds were given as seed money to the GIIF

– The Fund is mandated to invest in, purchase and realize any investment of any kind

– The funds are not to be comingled with government funds

– The fund is set up as a sovereign wealth fund and it is statutory just like DACF, GETFund, NHIA and is by law operationally independent

– Public funds do not only reside in the Bank of Ghana. This is all accounted for as part of public funds


The response of the Minister in terms of the arguments he has advanced to defend this transaction saddens me. It confirms to me that those in charge of managing our finances do no really know what they are doing.

First of all, if the Minister had taken his time to read the Bank of Ghana Act (unless he is pretending not to have read) he would have found out that this transaction is in violation of Section 53 of the Bank of Ghana Act 2002 (Act 612) which relates to the holding of State foreign exchange.

Section 53 of the Bank of Ghana

“The Bank shall hold all foreign exchange of the State and be responsible to Parliament in the performance of its function in relation to the foreign exchange”

It should be noted that under the law, the foreign exchange that was deposited at the UBA belongs to the state and should be part of Ghana’s foreign exchange reserves. By moving the foreign exchange to UBA the transaction takes the funds out of Ghana’s foreign exchange reserves, what the Minister has done, contrary to the law, is to outsource the management of Ghana’s foreign exchange reserves (which is the preserve of the Bank of Ghana) to a Private Bank. In fact, the Minister should know that under the law all state foreign exchange accounts are supposed to reside with
the Bank of Ghana. The parts of Ghana’s foreign exchange reserves that are outsourced to external fund managers are still held in the name of the Bank of Ghana.

In his response, the Minister also mentioned the DACF, NHIA and GETfund as examples of statutory funds like GIIF. At the same time he claims the GIIF is a sovereign wealth fund. This is basically comparing apples with oranges. The proper
comparison should have been with the Petroleum Fund which is kept at the Bank of Ghana under the Petroleum revenue Management Act, consistent with the Bank of Ghana Act.


Beyond the issue of legality, there is the issue of prudence in the management of Ghana’s resources. How do you go and borrow money for 10.75% (US dollar) and give it to someone to lend it to you at over 20% (GHC)? In effect you are paying over 30%! Assuming stable exchange rates, Ghana will be paying additional interest of at least $50 million a year on this transaction. It really is reckless.

The government is claiming that the funds were “idle”. Really? What does that mean? Why do you borrow funds and pay interest on it if you do not have use for them at the moment? It is clear that the GIIF does not have a portfolio of projects ready to invest in and it is weird to allocate a whopping sum of $250 million to them at this time. Is the Minister aware that the country owes N-Gas some $100 million?

What about other contractors who are owed money by the government? How can you owe so much, have so much to do and yet claim to have “idle” borrowed funds? The allocation of such an amount to a private bank also has major macroeconomic consequences for a relatively small economy like Ghana. It increases the deposits of the banking system and ultimately the money supply. It has inflationary and exchange rate depreciation consequences and would make it more difficult for the government to meet its inflation target. I am surprised that the government is oblivious of these consequences.

The Funds should stay at the Bank of Ghana. After all the Bank of Ghana, on its own or through its external fund managers of the caliber of internationally reputable banks like UBS, JP Morgan, Citibank, Merrill Lynch etc. can undertake whatever investment of the country’s foreign exchange that the government would like it to

The placement of the $250 million by the Minister of Finance is a violation of the law as well as imprudent financial management. The Ministry of Finance along with the Bank of Ghana are supposed to enforce the Bank of Ghana Act and not to be party to breaking it. Under the current IMF program there is supposed to be a new Bank of Ghana Act. It will not be worth much if the existing one is being violated with impunity by the very sponsors of the new Act.
What would private sector players make of this?

In light of the confirmation of this transaction from the Ministry of Finance, I believe that:
– There should be a parliamentary inquiry
– The transaction should be reversed

Dr. Mahamudu Bawumia
(May, 10 2016)

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