Ghana’s financial markets grapple with uncertainty amidst reopened domestic debt exchange programme
Ghana’s financial markets find themselves at a crossroads. The spotlight shines brightly on the reopened Domestic Debt Exchange Programme (DDEP) for Daakye Trust PLC and ESLA PLC, casting a shadow over primary market prospects. Investors, perched on the edge of anticipation, eagerly await crucial details regarding the program’s revival and the impending verdict from the Bank of Ghana (BoG) Monetary Policy Committee (MPC).
Constant Capital, in its weekly monitor, foresees a tempered performance on the primary market, citing the need for further clarity on the DDEP’s revival and the upcoming MPC meeting that commenced on September 19, 2023.
Adding to the complexity, the government’s announcement on September 13, 2023, regarding the rekindling of its invitation to the debt exchange has muddied the waters. The Pensioner Bondholders’ Forum’s rejection of this overture and the Ghana Association of Banks (GAB) signaling a pause in their involvement until official confirmation of the program’s conclusion further underscores the intrigue.
The invitation extends to holders of unexchanged government bonds – Daakye Trust PLC and ESLA PLC – offering a new suite of bonds. The issuance target stands at a formidable GH¢12.94 billion, mirroring the terms of the initial DDEP. This move offers a lifeline to investors seeking to liquidate their bonds before maturity, allowing them to exchange less-liquid notes for potentially more liquid ones.
GCB Capital, in its weekly market review, opines that while the government remains committed to servicing the bonds, post-DDEP realities hint at a preference for prioritizing the management of the exchanged debts amidst domestic resource constraints.
As the week unfolds, the Treasury braces itself to refinance maturing debt valued at GH¢2.41 billion in 91- and 182-day bills. The government, with its sights set on a GH¢2.59 billion target in the next primary auction, must confront a recent dip in enthusiasm. A four-week streak of oversubscription was broken, with the Treasury securing GH¢3.35 billion out of a GH¢3.76 billion target, signaling an undersubscription of 10.86 percent.
This shortfall implies that only 95 percent of the GH¢3.5 billion maturing face value will find coverage. As anticipated, yields continued their ascent, with the 91-day, 182-day, and 365-day papers closing at 28.12 percent, 29.39 percent, and 32.17 percent, respectively, at the conclusion of the auction.
The preceding T-bill auction exhibited a total demand of GH¢3.15 billion, marking a 7 percent week-on-week increase against a GH¢3.76 billion target, revealing a significant 44.5 percent weekly surge. While the Treasury accepted 99.9 percent of the bids tendered, it still fell short – 16 percent below the auction target and 10 percent shy of the T-bill maturity obligation.
This deficit owes itself to the substantial hike in the target size and the weekly refinancing burden, contrasting with the gradual growth in demand. The 91-day bill scaled to 28.12 percent, reflecting a 33 basis-point increase week-on-week. The 182-day and 364-day bills charted similar trajectories, settling at 29.29 percent and 32.17 percent, respectively.
In a separate development, the release of Consumer Price Index (CPI) data last week revealed a 3 percent dip in headline inflation in August 2023. This dovetails intriguingly with the impending MPC meeting scheduled from September 19th to 22nd.
Market experts, cognizant of lingering upside risks from petroleum prices, predict a continued descent in inflation throughout the fourth quarter of 2023, primarily driven by favorable base effects. Consequently, the Monetary Policy Committee is expected to maintain a rate-neutral stance for the remainder of 2023, potentially pivoting in the first quarter of 2024 once inflation recedes sufficiently.
With the nation’s economic outlook hanging in the balance, all eyes are firmly trained on the forthcoming Bank of Ghana MPC meeting. Investors are poised to decode the central bank’s strategy as it navigates these intricate market conditions.
