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Unapproved Gov’t Lending Stifles Capital Market Growth – Expert

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A finance attorney, Jonathan Sitsofe Kofi Amable, has raised alarms about the government’s borrowing practices, particularly the lack of parliamentary consent for domestic debt issuance.

Mr. Amable believes that the government’s practice of obtaining loans through treasury bills, bonds, and other domestic debt securities from the Bank of Ghana (BoG) without the necessary parliamentary sanction on the terms and conditions is a detriment to the capital market’s expansion.

He points out that the 1992 Ghanaian Constitution, specifically Article 181 clauses (3), (4), and (6), mandates parliamentary ratification for all government borrowings before they become valid.

Speaking on Citi TV’s program The Point of View,” Mr. Amable emphasised the critical nature of these constitutional loan restrictions for the government. He argued for the repeal of section 61 of the Public Financial Management Act of 2016 (Act 921) and section 30 of the Bank of Ghana Act of 2002 (Act 612), claiming they contravene the stipulations of Article 181 of the Constitution.

“What we’re doing is we’re seeking for the court to enforce Article 181 to require that lending to the government through the issuance of domestic debt securities. Be it treasury bills or bonds must be done subject to parliamentary approval of the terms and conditions of the transactions. Lending by the BoG to the government under the BoG Act is also done that way.

“The relevance of provisions of these Acts which fly in the face of the constitution of parliament should be struck down. These are the things we are seeking, and they are quite important because in my practice as a finance lawyer, we have realised that these things at the end of the day, especially when it comes to the capital market prevent it from being deepened and developed,” he stated.

The finance lawyer noted that having external control on government borrowing could be an effective solution to reduce the crowding out of the private sector because parliamentary control could lead to lower interest rates, which would enable corporate institutions to compete with treasury instruments in the capital and money markets.

“No matter how attractive an investment is, and we’re talking about low productivity and economic growth, and you need the private sector to grow. The private sector needs access to capital to be able to do that. And if banking rates are high in the traditional banking sector, the various corporate institutions also have recourse to the capital market.

“One thing that inhibits the growth of our capital market is this issue of the government crowding out because if you have a corporate institution that is seeking funds and comes to the market, everybody is looking at the risk involved.

“And what are the returns I can get if I’m lending on government bonds, treasury bills? Back then the problem had to do with the bond, now with the DDEP, coupons on the bonds are lowered and the focus is on the treasury bill which is seen at a high rate.

“If these things are resolved then the rate can be controlled and it will give the private sector more capital so that they can do more, produce more and boost the economic development of the country. That for me is the focus.”

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