As government moves to sail safely through the oncoming IMF programme and rebound, Ghana’s dollar bonds from the Eurobond market gained for a second day amid investor optimism.
According to global economic strategist and experts, the country’s Eurobond maturing in 2027 rose 1% to 65.82 cents in the dollar [two days ago], the highest in more than six weeks.
The bonds had been trading at distressed levels, with yields above 20%, before Ghana announced last week it would engage the IMF for balance-of-payments support.
Stephen Bailey-Smith, a Kolding, Denmark-based investment strategist at Global Evolution, said the market had been concerned over the government’s financing needs in the short term. He stressed that the IMF programme may also provide some “gravitas to the government’s claims of fiscal reform.”
While Ghana aims to cut its budget shortfall to 7.4% of gross domestic product this year from an estimated 12.1% of GDP in 2021, that is becoming more difficult as price pressures emanating from Russia’s invasion of Ukraine take a toll on economic activity.
The inflation rate rose to more than an 18-year high of 27.6% in May. The economy, which grew 5.4% last year, expanded less than expected in the first three months of 2022 at 3.3%. Public debt increased to 78% of gross domestic product at the end of March from 76.6% in December.
Debt vulnerabilities
In the same vein, Samantha Singh, a Johannesburg-based Africa strategist at Absa Bank Ltd, has noted the potential IMF programme could play an important role in helping the country entrench its fiscal consolidation path and reduce debt vulnerabilities.
“The sooner these policies are implemented; it could also reduce the severity of any potential liability management,” he stated
Meanwhile, a team from the International Monetary Fund will arrive in Ghana today, Wednesday July 6, 2022 to commence negotiations with the government on the modalities for a package to support Ghana’s economy.
Ghana’s decision to opt for an IMF programme has been greeted with mixed reactions, with concern about what it may mean for public sector jobs and social programmes.
Not peculiar
According to a report from a bond credit rating business corporation, Moody’s Investors Service, last week, while the rollover risk is expected to intensify for many African sovereigns over the next decade, due to the war in Ukraine, lower-rated borrowers like Ghana, Tunisia, Kenya, and Egypt were already facing difficulties securing market-based financing and were vulnerable to a rise in borrowing costs.
Ghana has $7.3 billion principal repayments due on outstanding eurobonds by 2032, according to Moody’s. Egypt has $26.9 billion, Kenya $5.1 billion and Tunisia $3 billion.
Stabilising antidote
Kaan Nazli, a money manager at Neuberger Berman, said the IMF and other multilateral lenders helped stabilize vulnerable African markets through emergency funding during the pandemic, but not all of them chose to accept assistance.
“You had a divergence between those like Cameroon and Senegal going for further IMF support and undertaking the necessary reforms, and those who thought they could go on their own – and maybe they would be able to if we didn’t have another massive economic shock from Russia’s invasion of Ukraine,” Nazli said.
“We’re seeing some of those countries take a more realistic approach now, in light of the significant risks to the global economy and impaired access to capital markets,” he added
Credit: BNN Bloomberg
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