Ghana Prepares Cautious Return to Domestic Bond Market Following Debt Restructuring
Ghana is set to cautiously re-enter the domestic bond market in the second quarter of 2025, following the conclusion of its domestic debt exchange program in February 2023, which saw over 80% participation. The move comes as the government seeks to restore investor confidence and establish a sustainable financing strategy after last year’s restructuring.
According to the third review of Ghana’s IMF program published in December 2024, authorities are planning a gradual resumption of domestic bond issuances. However, with a new administration now in power, the timeline remains uncertain.
The government’s strategy includes issuing a two-year bond and unveiling a revised medium-term debt management strategy along with an annual borrowing plan. These measures aim to reassure investors of a prudent and transparent debt approach.
Investor Sentiment: Cautious Optimism Amid Uncertainty
Investor appetite for longer-term bonds remains uncertain. Since the debt exchange, many investors have shifted to treasury bills, drawn by higher yields. However, the government’s recent stance on borrowing costs has introduced a layer of complexity.
At the latest auction on February 14, 2025, the government rejected GHS 8.2 billion in bids, signaling a reluctance to accept elevated rates. This move, intended to curb borrowing costs, has left excess liquidity in the market, potentially setting the stage for a successful bond issuance if conditions are deemed favorable.
However, investor confidence is likely to hinge on the credibility of the government’s debt management strategy and its ability to strike a balance between fiscal discipline and meeting spending commitments.
Fiscal Constraints and Market Dynamics
Ghana’s decision to return to the domestic bond market comes amid tight fiscal constraints. Under its external debt restructuring agreement, the government is committed to capping new external borrowing at $250 million for 2025. With international capital markets largely inaccessible and rising domestic interest rates, reliance on the local bond market is becoming increasingly crucial.
Additionally, the new administration’s policy agenda, influenced by the NDC’s manifesto, could add further pressure to public finances, posing challenges to maintaining a balanced borrowing strategy.
Economic Outlook: Balancing Liquidity and Stability
The government’s return to the bond market underscores its attempt to balance short-term liquidity needs with long-term financial stability. While treasury bills have provided immediate liquidity, the issuance of longer-term bonds is viewed as a commitment to sustainable financing.
Nevertheless, the success of the planned bond issuances will depend on the government’s ability to navigate market dynamics and reassure investors of its commitment to fiscal discipline. Market participants will be closely watching the unveiling of the revised debt management strategy and its implications for Ghana’s economic stability.
