Ghana confounds sceptics by raising $3bn in eurobond sale

By David Whitehouse
Posted on Tuesday, 6 April 2021 09:39

Ghana's President Nana Akufo-Addo has limited financial room for manoeuvre. REUTERS/Denis Balibouse

Ghana proved it can still access international debt markets by raising $3bn in late March.

The government aims to borrow a total $5bn from markets this year, but the fact that the government’s interest costs are close to 50% of its revenue has led to analyst scepticism it can reach the target.

Yet, in a global context of low interest rates and ample liquidity, the March eurobond sale – the issuing of bonds in a foreign currency – was subscribed twice over. Among the bonds sold were a four-year zero-coupon bond, which raised $525m and showed that some investors are even willing to lend to Ghana without interest.

“Benevolent market conditions and the dearth of high-yielding issuance” trumped investors’ concerns about Ghana’s fiscal challenges, says Mark Bohlund, senior credit research analyst at REDD Intelligence in London.

  • Favourable market conditions are likely to continue this year, “but some hiccups and market corrections are likely to occur as US treasury yields creep higher,” he says.
  • Ghana will use $400m of the receipts to refinance domestic debt, which will create savings of about $200m over four years.
  • Domestic debt is much more expensive, with an average cost of 17.2% at the end of 2020, compared with 5.3% for external debt.

Limited scope

History shows that Ghana is more resilient in times of economic crisis than its neighbours, says Anaïs Auvray, West Africa consultant at the Africa Matters advisory firm in London. This “bounce-back” capability is supported by economic diversification and accelerating industrialisation, she adds.

  • Ghana overtook Nigeria as West Africa’s largest recipient of foreign direct investment in 2019, Auvray notes.
  • Investors will benefit from a largely predictable regulatory framework in the second term of re-elected President Nana Akufo-Addo, she adds.
  • “Ghana is likely to remain an attractive market for institutional investors in 2021,” says Auvray.

Public finances still leave Akufo-Addo with very limited room for manoeuvre.

The government still needs to rein in spending and debt to avoid debt crises, says Leeuwner Esterhuysen, an analyst at NKC African Economics in Paarl, South Africa.

  • The government plans to narrow this year’s budget deficit by increasing revenue by a third, to reach 16.7% of GDP.
  • This will be done with a levy of 5% on pre-tax banking profits, charges for petrol and diesel use and higher national health insurance and value-added tax rates.
  • Yvonne Mhango, head of research for sub-Saharan Africa at Renaissance Capital in Johannesburg, writes that even these measures, plus a 5% growth projection and a low base effect leave the government’s revenue projection looking “optimistic”.
  • NKC predicts that public debt will increase to 84% of GDP this year.

Ghana’s public debt has increased by 58% over the last five years and stood at 76% of GDP at the end of 2020. In research published in April 2021, Auvray writes that this will likely prevent Akufo-Addo from cutting taxes and constrain his industrial and infrastructure development plans.

“It remains to be seen for how long Ghana will retain market access as the fiscal situation is very unlikely to improve,” concludes Bohlund.

Bottom line

Analysts argue that Ghana needs to strengthen its public finances while it retains access to international debt markets.

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