Neville Mandimika, an Economist and Fixed Income Strategist at FirstRand Bank in Johannesburg, South Africa, has averred that given the debt situation of the country, Ghana no more has entry into the Eurobond market, hence needs an alternative workable plan to finance its budget.
Mr Mandimika was reacting to a Bloomberg Report that, Ghana may pay higher premium if it returns to capital market. He explained that, due to Ghana’s debt situation, there is no ‘reasonable’ price in the market at which Ghana can have access to the Eurobonds.
“Do they still have access to the Eurobond market at these levels? Could they issue one at a reasonable price, the answer seems to be no.”
Neville Mandimika
According to Bloomberg index tracking emerging-market hard-currency debt, Ghana’s dollar bonds are the worst performers this month of October. It experienced a decline of 5.8 percent. The situation worsened as the 2025 yield also jumped by 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 per cent, the highest on record.
As a result, Mr Mandimika suggested the country starts looking at other plans in absence of their main source of revenue – the Eurobond market.
“At this point, they [Ghana] need to present a credible plan B on how they fund the budget in the absence of Eurobond issuance.
Neville Mandimika
Mr Mandimika asserted that Ghana may have no option than to return to the International Monetary Fund (IMF) for financial support if its debt continues to rise.
“In a worst-case scenario where debt is growing amid a global risk-off mood, Ghana may have to head back to the IMF.”
Neville Mandimika
The debt, which is presently a little above ¢335 billion, continues to surge and create problems for the economy.
According to a Bloomberg survey, the country may have to pay a higher premium if it returns to the international capital market next year to issue a Eurobond.
Ghana’s credit-risk premium soared to the highest since the start of the COVID-19 pandemic ahead of next month’s budget.
Ghana has historically relied on funding from the Eurobond market to fund expenditure. Nonetheless, 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.
The Governor of the Bank of Ghana, Dr. Ernest Addison, speaking at the recent Ghana Economic Forum, called for a fiscal policy in next year’s budget that will create a more credible path towards fiscal or financial sustainability.
According to him, this is important for the country’s quest to accelerate its economy rapidly but financially sound.
“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”.
Dr. Ernest Addison
The country’s revenue fell short of target by 12 per cent to ¢34.3 billion ($5.66 billion) in the first seven months of the year 2021, and may continue to do so, putting pressure on its economic growth outlook.
Slower-than-anticipated growth will also make it harder for Ghana to fund its budget deficit, which is expected to return within the legislated threshold of 5 per cent of Gross Domestic Product by 2024, after breaching it last year, 2020.
The Strategist also expressed worry about the widening credit spreads that raise questions about the country’s debt trajectory.
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