Graphic Business News

Why GETFund wants to borrow GH¢2.3bn

By: Maxwell Akalaare Adombila
• The GH¢2.3 billion loan is to help finance education infrastructure such as this hostel constructed from GETFund proceeds
• The GH¢2.3 billion loan is to help finance education infrastructure such as this hostel constructed from GETFund proceeds

TO help contain the rising demand for educational infrastructure nationwide, the Ghana Education Trust Fund (GETFund) has decided to borrow a total of GH¢2.3 billion from a consortium of financial institutions to be used to fund the construction and completion of basic school buildings, as well as vocational and technical training centres.

The loan is to be backed by a portion of GETFund's allocations under a financing arrangement that mirrors the decades-old cocoa syndication loan, where the Ghana Cocoa Board (COCOBOD) lends from a consortium of local and international financiers on the back of cocoa proceeds. 

But unlike the cocoa loan, which is normally paid off within 10 months, the proposed GETFund loan will have a tenor of two years.

Consequently, a financing team, comprising officials from the Ministries of Education and Finance and the GETFund, has been put together to help execute the novel transaction before September this year.

The Coordinator of the Financing Team, Mr Hayford Amoh, told the GRAPHIC BUSINESS in an interview that the landmark deal was meant to bring lasting solution to the piecemeal approach to infrastructure provision in the education sector over the years.

He added that his outfit expected to seal a deal by August ending to allow for a first draw in September, this year.

Amount to be used
Mr Amoh said the decision to borrow on the back of the GETFund’s proceeds was inspired by the pressing need for expanded educational infrastructure.

With the Free Senior High School (SHS) policy increasing student enrolment, he said, an innovative approach was needed to help raise finance to meet that demand.

“There are pressing demands for education infrastructure, especially in the wake of the government’s Free SHS Policy, expansion of tertiary education and the rest.

“So, there is obviously an immediate need for this infrastructure to be created,” he stated.

Given that GETFund inflows are periodic, he said, it made sense to leverage portions of those proceeds for a loan to finance current needs.

“That is actually the way to address an infrastructural deficit on the back of an existing flow to the GETFund,” he noted.

In spite of the enormous benefits of the loan to education financing in the country, Mr Amoh said the team was conversant of the need not to constrain GETFund’s normal operational activities through the financing arrangement.

As a result, the team, he indicated, had agreed to use between 30 per cent and 35 per cent of GETFund’s allocation meant for pure educational infrastructure.

“Other than this, they will be doing bits and pieces. You know that because we have financing challenges, a lot of the time, the cost of a project rises or even doubles after it has been completed all because of delays arising from no funds and the impact of inflation.

“So, this is an economical arrangement to be able to create this asset for use now so that we can avoid all those things,” he added.

Concessionary terms
Like the cocoa loan, Mr Amoh explained that the current loan was opened to domestic and international institutions capable of lending GETFund the desired amount.

He said the choice of institutions will be dependent on the ability to deliver and could be sourced from one institution to a consortium.

On the interest rate being considered, Mr Amoh stated that the idea was to raise the money under concessionary terms.

“We are looking at a very concessionary term loan and it can be as concessionary as possible. We do not want the cost of funds we are borrowing to suffocate the GETFund envelope,” he said.

As part of the evaluation process, he said the team would seek to establish proof of funds, given the size of the facility.

“We do not want a situation where you will just come and say you can provide this amount and when we want to call on the funds, you come back to say you don’t have funds available,” he said.

GETFund proceeds
Sources of funds for the GETFund, which was established in 2000, include the equivalent of 2.5 per cent of VAT collections, money approved by Parliament, contributions, grants, gifts and donations, as well as investment proceeds.

Last year, Parliament approved the disbursement of a total of GH¢790 million for the fund to distribute to the tertiary, secondary and basic education sub-sectors as well as other agencies under the fund.

This year, however, the amount approved rose to GH¢924.8 million.

GETFund is part of the earmarked funds, whose disbursements are impacting negatively on government’s fiscal operations.