Ghana’s bonds rally — Ato Forson
The international markets have reacted positively to the news that Ghana has passed the third review of its extended credit facility (ECF) programme with the International Monetary Fund (IMF).
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This is reflected in the performance of Ghanaian bonds on the international markets. Ghana’s credit curve has rallied, notably over the last few days, benefitting from a more conducive market backdrop.
While all the African bonds have rallied in recent days by one percentage point, Ghana has outperformed them by rallying three percentage points since the announcement of the IMF’s review, reflecting investors’ positive response to the review.
Using Ghana’s 2026 as proxy, as of Monday, May 9, the cash price was US$79/80 and by May 12 it had risen to US$82.50/83.50, while the yield within the same period has dropped by over 400 basis points from 11.818/11.613 to 11.352/11.114.
A market watcher told the Daily Graphic: “The Ghana credit curve has rallied, notably over the few days, benefitting from a more conducive market backdrop aided by a rally in oil and other commodities.
“It is worth noting that while African credits have all rallied in recent days by one percentage point, Ghana has been a clear outperformer. The notes have rallied by three percentage points since the announcement of the review, reflecting investors’ positive response.”
In August 2014, the government turned to the IMF for financial support and advice as it battled to overcome serious macroeconomic instability caused by a hefty 11.6%-of-GDP budget deficit recorded in 2012, which was followed by another double-digit deficit of 10.4 per cent of GDP in 2013.
Before the call to the IMF, the government had been implementing its own home-grown stabilisation measures which involved a mixture of tax hikes and expenditure retrenchment.
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Govt’s response
A Deputy Minister for Finance, Mr Cassiel Ato Forson, said: “For us, it is good news. We will continue to assure the markets that in spite of the fact that we are in an election year, we will stay within the fiscal consolidation path and bring our debt to sustainable limits. We will ensure that we won’t overrun our budget in 2016.
“We saw it coming because one major risk was that people thought we were not going to take the programme seriously and, therefore, the markets were sceptical.
“However, after going through three reviews and actually being ahead of the programme, the investors can see clearly that, indeed, the government is very committed to the programme and that it can consolidate, in spite of the headwinds of commodities not doing well.
“For the first time we have seen the primary balance, which is the main driver of debt accumulation, reduce from 4.4 per cent of GDP in 2014 to 0.02 per cent of GDP.”
There have been concerns that the yields on Ghanaian bonds are high, and this is particularly reflected in the high coupon rate of 10.75 per cent that the country paid for its US$1 billion Eurobond issued in October 2015, notwithstanding the partial guarantee provided by the World Bank for the debt.
Although the bond’s 15-year tenor was lengthier than previous issues, the coupon it attracted was the highest ever paid by a sub-Saharan African country on the international bond market.
Mr Forson said investor scepticism was one of the reasons the yields on Ghanaian bonds were high.
However, another reason was the overall rise in interest rates during that period, arising from the tapering of quantitative easing and anticipated increases in US interest rates.
“I have always argued that our credit and our yield are higher than it should be given our performance. And this is happening because of the noise resulting from people always talking down the economy as if nothing is happening.
“We have always maintained that numbers don’t lie. We are hoping that the rally will continue because the benefits of the fiscal consolidation are beginning to show,” the deputy minister said.
Third review
Last week, a team from the IMF, led by Joël Toujas-Bernaté, after its third review, concluded that implementation of the programme so far remained broadly satisfactory.
“Most of end-December 2015 performance criteria were met, with the exception of small deviations in the wage bill and net domestic assets of the Bank of Ghana (BOG).
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“Despite the more difficult global environment, with lower commodity prices and domestic power shortages, economic growth in 2015 was close to four per cent, slightly higher than expected. Inflation, which remains still high at 19.2 per cent in March 2016, is being affected by the increase in utility tariffs, energy sector levies and transportation costs, but core inflation has started to decline in recent months,” the IMF team said.