Bloomberg survey reveals Ghana may return to the IMF; pay higher premium on Eurobonds issuance
Ghana may have to return to the International Monetary Fund (IMF) amid its upward debt trajectory trend says Economist and Fixed Income Strategist at FirstRand Bank in Johannesburg, Neville Mandimika.
Speaking to Bloomberg on the country’s debt, Mr Mandimika opined that the country needs to adopt another plan on how it intends to finance its budget deficit aside the use of Eurobonds which the country is going to pay a higher premium for if it returns to the international capital market next year to issue a Eurobond.
“Do they [Ghana] still have access to the Eurobond market at these levels? Could they issue one at a reasonable price?. The answer seems to be no,” he told Bloomberg.
“At this point they need to present a credible plan B on how they fund the budget in the absence of Eurobond issuance. In a worst-case scenario where debt is growing amid a global risk-off mood, Ghana may have to head back to the IMF,” he added.
Mr Mandimika’s assertion for the country to find another way of financing its budget re-echoes the Governor of the Central Bank’s comments on the need for the country to reset its fiscal policy with the 2022 budget to create a more credible path towards medium-term fiscal sustainability.
“The 2022 budget should be used to reset fiscal policy to create a more credible path towards medium term fiscal sustainability. This would be an important building block to establish and entrench credibility, a key component to stability,” said Dr Addison delivering a speech at the just ended 10th edition of the Business and Financial Times’ Ghana Economic Forum.
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Ghana’s credit-risk premium soared to the highest since the start of the Covid-19 pandemic. The country has historically relied on funding from the Eurobond market to fund expenditure.
But limited access to international loans could force the government to supply more debt locally, which would be detrimental to cedi yields as banks and institutions already own about 80% of the financial instrument.
Ghana’s dollar bonds are the worst performers this month in a Bloomberg index tracking emerging-market hard-currency debt, with a decline of 5.8%. The 2025 yield jumped 153 basis points on Monday, 18th October, 2021, the most in a day on record since the debt began to trade in April 2021.
It climbed a ninth consecutive day on 20th October, 2021 by 4.0 basis points to 11.28%, the highest on record.
Premium investors have demanded to hold the country’s debt rather than US Treasuries, which has climbed 144 basis points on October 1st, 2021 to 910 basis points on Tuesday, 19th October, 2021, the highest since May 2020.
Presently the country’s total debt stands a little above Ghs 335 billion representing 76.1 percent of Gross Domestic Product (GDP) and projected to further hit the 80 percent debt-to-GDP mark by the end of this year.
