Credit rating agency, Moodys Investor Services, has said that Ghana has one of the highest shares of non-resident participation in the local currency debt market.
Data provided by the Bank of Ghana (BoG) indicates that ono-resident investors share of Ghana’s local currency public debt as at the end of 2020 stood at 18.5 percent, falling behind other African countries such as South Africa, Nigeria and Egypt.
“One important aspect of financial market development is the participation of nonresidents in the local currency (LC) government bond market. In Africa, South Africa, Egypt, Nigeria and Ghana have the highest shares of nonresident participation in their LC markets,” stated Moodys.
According to Moodys, the presence of non-resident investors in the Ghanaian debt market is supported by policies that reduce capital account restrictions on foreign participation as well as investors’ search for yield.
Moody’s in its assessment of the country’s local debt market also notes that benefits from a broader funding base and the outsourcing of currency risk to foreign investors are balanced against the procyclical nature of portfolio flows, with potential spillovers to exchange rate volatility and higher local currency borrowing costs in times of risk aversion, in addition to the potential drawdown of forex reserves.
“Foreign participation in Ghana has been more volatile over the past few years in light of their less diversified economies and higher idiosyncratic risks, including commodity price dependence,” noted the rating agency.
It added that driven by fiscal reforms and new hydrocarbon developments, Ghana has emerged from its 2016 fiscal crisis and foreign investors have increased their exposure to the local currency debt market, aided by the government’s loosening of investment restrictions.
“But thin forex reserve coverage of external debt, Ghana’s weak debt affordability and its vulnerability to depreciation risks put it among the most exposed sovereigns to funding shocks.”
“Continued foreign participation will depend on yields being high enough to compensate for mounting fiscal risks, keeping funding costs elevated,” stated Moodys.
Government borrows Ghs 56 billion on domestic market in Q1 2021
Government, for the first quarter of 2021 borrowed a total of Ghs 56 billion in the auction of short–term securities on the domestic debt market.
This is according to the first quarter Quarterly Bulletin released by the Central Bank.
Borrowings by government was largely made through the issuance of 91, 182 and 364 days treasury bills as well as short and medium term bonds.
Debt raised through the issuance of the 91 day T-bill amounted to Ghs 846.8 million, with regards to the 182 and 364 day T-bills, debts raised amounted to Ghs 1,355.9 million and Ghs 1,603.2 million respectively.
Per data released by the Central Bank, some Ghs 44.4 billion was used to settle matured debts with the remaining Ghs 11.5 billion used to finance government activities.
Overall, the stock of domestic debt at the end of the first quarter was Ghs 164.5 billion, indicating an increase of Ghs 13.8 billion compared to the fourth quarter of 2020.
The growth in the domestic debt stock reflected increases in the short- and medium-term bonds and stocks by Ghs 3.8 billion and Ghs 9.9 billion respectively, with the long-term instruments increasing marginally by Ghs 96.4 million.
Overall, short-term domestic debt for Q1 2021 grew by 22.6 percent.