Ghana faces challenges in issuing Eurobonds at attractive yields
Government may face challenges in issuing Eurobonds at attractive yields in the short term, despite securing an International Monetary Fund support program, according to a recent report by Fitch Solutions. The report highlights several factors that may impact the country’s ability to borrow on international markets.
One significant challenge is external financing constraints, which have prevented Ghana from accessing the international capital market since late 2021. While an expected IMF deal in Quarter 1, 2023, is expected to gradually improve market sentiment, Fitch Solutions suggests that the government is unlikely to be able to issue Eurobonds at attractive yields in the short term.
The report also notes that the IMF program, which is expected to be worth $3 billion over a three-year period, will only finance a portion of the targeted deficit. The government may need to consider alternative sources of funding, such as domestic borrowing, to meet its financing needs.
However, rising interest rates make domestic borrowing more expensive, which could further weaken Ghana’s fiscal dynamics. The report suggests that given Ghana’s already elevated interest payments, a substantial increase in domestic debt issuance could exacerbate these challenges.
Furthermore, the government’s expansionary spending plans are likely to result in a rising public debt-to-Gross Domestic Product (GDP) ratio. Fitch Solutions expects this ratio to continue on an upward trajectory until 2028, after which it will start to moderate. Nonetheless, the report highlights several risks to this outlook.
One such risk is that the IMF could express concerns about Ghana’s 2023 budget given the elevated spending target. This could lead to the government having to revise its fiscal plans, which could draw out the negotiation process.
In addition, Fitch Solutions notes that the domestic debt exchange program could make domestic banks more cautious in lending to the government in 2023. This could limit the government’s ability to raise funds domestically, further complicating its financing strategy.
Despite these challenges, the report notes that Ghana’s economy remains robust, with solid growth prospects driven by the country’s natural resources sector. The report suggests that Ghana’s government may need to consider a mix of financing options, including targeted spending cuts and increased revenue collection, to manage its fiscal challenges and support its growth agenda.
PGhana’s government may face challenges in issuing Eurobonds at attractive yields in the short term, despite securing an IMF support program. The country’s external financing constraints, rising interest rates, and domestic debt dynamics are likely to complicate its financing strategy. Nonetheless, the country’s solid growth prospects suggest that it has the potential to overcome these challenges with targeted policy interventions and a prudent fiscal management approach.
