The funds will act as guarantee in case Ghana face challenges in paying the Eurobond on time.
It will also ensure that the country gets a good interest rate on the Eurobond issue as the World Bank Group will use its AAA ratings to back the one billion dollar bond.
This will in the long-term also reduce the cost associated with the bond that will be issued. It is also expected to help Ghana access long-term refinancing resources at more attractive rates than what will be available to Ghana on a stand-alone basis.
Furthermore it will also help extend the maturity of Ghana’s debt and lower the interest cost of domestic debts repayments.
Without this guarantee, it was believed that Ghana’s access to the international capital market will require longer tenor terms in the capital markets and the country would have wait until the benefits of the stabilized program are fully realized.
However these might not support government’s plan to raise more funds from the capital market.
After the board’s approval today, the lead managers of Ghana’s Eurobond will commence more formal market soundings through discussions with investors and roadshows in selected financial centers, with participation from government and the World Bank team.
It is believed that Ghana’s net external debt financing will remain manageable supported by this 400 million dollar guarantee.
From an average payment of 383 million dollars per year in 2012 to 2014, Ghana’s annual debt payments are projected to increase to 827 million dollars this year to 2016 and even further to 1.2 billion dollars in 2017.
The World Bank Board is also expected to approve another 150 million dollars to support some projects outlined in the budgets. 50 million dollars will be advanced to support the Sankofa gas project.