Ghana's Oil Bill May Improve Credit Rating and Spur New Lending, IMF Says

A policy approved by lawmakers in Ghana that governs how revenue from the nascent oil sector is spent may provide a credit-rating boost and increase lending to the West African nation, according to the International Monetary Fund.

The law, passed on March 2, allows oil revenue to be used as collateral for loans in a “credit enhancement” program, said Wayne Mitchell, resident representative for the fund, based in Accra, the capital. The risk of default is reduced, which will lower interest rates, he said.

Ghana can pledge future oil revenue or barrels of oil as collateral to provide the lender of funds with reassurance that it will be compensated if the government of Ghana or any of its agencies defaulted on the loan,” Mitchell said in an e-mailed response to questions yesterday.

Members of Ghana’s Parliament debated the bill since at least November before assenting last week, almost three months after production began at the offshore Jubilee oil field, Ghana’s first major oil find. The bill allows the government to use 70 percent of oil revenue for spending, including loan collateral.

Ghana, which sold sub-Saharan Africa’s first Eurobonds outside of South Africa in 2007, had its sovereign-credit rate cut to B, five steps below investment grade, with a stable outlook by Standard & Poor’s in August.

‘Best Practice’

A provision to keep 21 percent of the revenue in a stabilization fund for the country to fall on in times of price volatility and a heritage fund with 9 percent of earnings saved for the future is “best practice,” Mitchell said in an earlier interview on March 2.

“It is only wise for the country to use a chunk of the oil revenues now for current expenditure as Ghana is faced with a lot of infrastructural need,” he said.

Ghana may earn more than the 584 million cedis ($383 million) of oil revenue projected in the country’s budget statement issued in November, Mitchell said. The average price of crude may be $95 per barrel in 2011 compared with the government’s budget estimate of $73 to $75, he added.

Production may increase to 120,000 barrels a day later this year from the current rate of about 50,000 barrels, according to Tullow Oil Plc (TLW), the field’s operator.

To contact the editor responsible for this story: Antony Sguazzin at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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