- It is only an unconventional means to finance gaps in budget
Former finance minister, Seth Terkper, says there are not enough reasons for government to justify the second coming of Special Purpose Vehicle, Agyapa Royalties deal, reiterating that the method may be just another unconventional means of filling in existing gaps in the budget.
After a lot of backlash last year from members of opposition, civil society organisations, and other stakeholders due to some concerns about the transparency of the transaction, the Agyapa deal was withdrawn after the Office of the Special Prosecutor cited it smacks of corruption.
However, President Nana Ado Dankwa Akufo-Addo indicated his government’s intention to take the deal back to Parliament for review, and subsequently be approved by the House, saying it is a way of ensuring the country realises maximum benefits from its natural mineral resources.
But Mr. Terkper, speaking to the B&FT in an interview after Minister of Finance, Ken Ofori-Atta, appeared before the vetting committee of Parliament and answered questions regarding the highly debatable deal, said the coming back of the deal may be because the other conventional means of borrowing such as raising bonds from the international capital market are becoming difficult for government, given its debt profile.
“I am inclined to think that the rebirth of Agyapa is about non-conventional means of financing the budget because of constraints we have with revenue. I am also inclined to believe that it is for financing because it is obvious that the debt has hit 80 percent of GDP and with debt at 80 percent, and a borrowing tag of US$5 billion where only US$1.5 billion is going into the budget and the rest is for refinancing, there won’t be significant flows into the budget from the bond that is going to be issued.
So it is just another non-conventional borrowing because the conventional means seem to be closing given the fact that the bulk of the conventional borrowing is going to go into refinancing of the debt, especially the fact that we are developing a record of using sovereign bonds to refinance recurrent expenditure,” he said.
Per the information made available about the deal, Agyapa Rolyalties Ltd is a Special Purpose Vehicle (SPV) created by the Minerals Income Investment Fund (MIIF) with the key objective of maximising the county’s mineral wealth by trading on the London Stock Exchange, among others.
This, according to Mr. Terkper, is different from the usual way of using Special Purpose vehicles as this one appears to focus on raising funds from tax havens.
“The second reason I disagree with the Agyapa deal is the use of Special Purpose Vehicle as a way of changing the way we do things. We have changed the way we do things when we found oil, including SPVs. We don’t use the oil revenue in a conventional manner anymore. Previously, it would have just gone into the consolidation account as fungible revenue just like the other tax and non-tax revenues and it would be the minister’s discretion to allocate it for recurrent or capital expenditure or to even use part of it to retire debt.
We came up and we said no, let us change the way we do things. The first is we found some money for GNPC to continue with exploration and operations, as well as pay its share of equity. Secondly, we said we should use part of the money for the Stabilization Fund. Thirdly, we said let’s put some money aside in the Heritage Fund for future generation. We wanted to use the fund to finance recurrent expenditure and political expenditure priorities but for the vigilance of the public.
Then, we had flows into the Sinking Fund to take care of debt repayments, a major current concern, given our breach of 80 percent debt to GDP ratio.
So on account of doing things differently and on account of setting up special purpose vehicles, I think the record is poor because the government could have convinced us that the special purpose vehicles in the oil revenue and the non-conventional way of using new resources have been unsuccessful and that would have been the basis for defending it,” he maintained.
He added: “Finally, we could have taken the royalties money when gold prices were going up and then channel it through infrastructure fund or even the conventional way of borrowing, which was enhanced with the setting up of escrow accounts under the self-financing scheme. But because we are not viable that is probably why we are thinking of tax havens to get non-conventional means of financing.
So the only rational reason for pushing to get money from non-conventional borrowing is to fill the budget gap despite the COVID loans and record borrowing in the last four years.”