Ghana Needs More Than Banks to Revive Bond-Market Demand

Dec 12, 2014
3 min read

Changing how Ghana issues local-currency debt probably won’t help breathe life into the market until the nation’s economic woes are redressed.

The central bank will start hiring lenders to sell the securities, Finance Minister Seth Terkper said in his 2015 budget speech last month. That’s after policy makers scrapped auctions in March, May and October amid accelerating inflation, a slumping currency and sputtering economic growth in the world’s second-biggest cocoa producer.

While Ghana dollar bonds have gained this year, local-currency debt is facing muted demand as the nation struggles with rising borrowing, power shortages and inflation which reached 17 percent last month amid a 26 percent plunge in the cedi in 2014.

Following two sovereign downgrades deeper into junk and aid sought from the International Monetary Fund, syndicated sales aren’t the answer to reviving the market, said Stuart Culverhouse at Exotix Ltd.

“Changing the way the bonds are sold is the wrong thing to do,” Culverhouse, chief economist at London-based frontier-markets investment company Exotix, said by phone yesterday. “The main problem is fiscal weakness. While the 2015 fiscal plan is bold, it has to be implemented.”

With little trading in the government bonds listed on the Ghana Stock Exchange (GGSECI), the central bank hasn’t sold cedi debt maturing in five years or more since September 2013.

Borrowing costs on benchmark 91-day Treasury bills climbed 657 basis points this year to 25.8 percent on Dec. 4, the highest in Africa, according to data compiled by Bloomberg.

‘Tackling Deficit’

Ghana will use a book-building approach similar to how it sells Eurobonds, Terkper said in his budget. The country’s dollar debt earned 7.3 percent this year, less than the 9.7 percent average return of 59 emerging markets, according to Bloomberg indexes.

Growth in Ghana’s economy, the largest in West Africa after Nigeria, is projected to slow to 3.9 percent next year from 6.9 percent in 2014, according to the Finance Ministry. That would be the least since 2005, according to the IMF.

The cedi is heading for its steepest decline since 2008. It traded 0.1 percent stronger at 3.2143 per dollar by 11:45 a.m. in Accra, the capital.

Ghana’s fiscal gap is projected to reach 9.5 percent of gross domestic product this year, wider than an earlier forecast of 8.8 percent. Terkper said in his spending plan the shortfall will narrow to 6.5 percent in 2015.

Corporate Issuers

“We are tackling the budget deficit,” he said by phone yesterday. “The 2015 plan clearly shows we want to bring down the deficit.”

The changes to the way bonds are sold is “to deepen the domestic bond market,” according to the minister. “It is to empower the stock exchange to encourage corporate issuers to take advantage of the capital market.”

Izwe Loans Ltd., a lender to small businesses and individuals, sold Ghana’s first corporate bond since 2007 last month. The Ghana Cocoa Board, a state-owned company, may sell bonds to help infrastructure projects, according to the budget.

Selling debt through banks and brokers could improve efficiency on the market, though it may not be enough to bring in buyers, said Sampson Akligoh, managing director of Accra-based InvestCorp Ltd., a money manager that started operations in August.

“Investors are more concerned about the current level of public debt and currency stability,” he said by phone yesterday. “The process of generating the deals could be more aggressive than before but this in itself will do really nothing to boost investors’ interest in Ghana’s medium- to- long-term debt.”

To contact the reporter on this story: Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net

To contact the editors responsible for this story: Vernon Wessels at vwessels@bloomberg.net Emily Bowers