Economist worried over Ghana’s 2021 Eurobond issuance… predicts higher yields

  

 Adnan Adams Mohammed

An economist has expressed serious reservations over Ghana’s intent to raise US$3 billion Eurobonds for the first quarter of 2021 fiscal period as he predicts investors might demand higher yields.

The economist believes, the recent cautions from the International Monetary Fund (IMF) and World Bank over Ghana’s rising debt levels which is estimated to hit over 75 percent of the country’s Gross Domestic Product (GDP), could be a major risk factor for investors to bank on to demand higher yields.

Parliament, last week, approved the government’s budget for first quarter of 2021 which included plans to raise US$3billion from Eurobonds to cushion up expected revenues to finance planned expenditures. The Minority in Parliament raised concerns over the impact of the Eurobond issuance on the country’s debt stock when the request for approval was tabled on the floor of Parliament.

 

“Borrowing on the heels of the IMF sounding a caution on your debt level will lead to higher interest rates,” Dr. Lord Mensah, a lecturer at University of Ghana has said in an interview last week.

 

He advised that, government should instead cut capital expenditure, strengthen the fiscal rules, phase out off-budget operations and improve domestic revenue performance.

 

“If your revenue performance is low, you cut expenditure to ensure a balance. You don’t go about borrowing to finance capital expenditure to increase the fiscal deficit,” the University of Ghana Business School lecturer said.

 

The IMF had projected Ghana’s debt-to-GDP to end the year at 76.7 percent in its Regional Economic Outlook for sub-Saharan Africa released on October 23.

 

The rising debt levels coupled with low revenue performance and sluggish economic growth induced by the Covid-19 pandemic will feature prominently in investor considerations when the government holds the roadshow for the bond early next year.

 

The country’s debt level rose to 68.3 percent of GDP (GH¢263bn) at the end of July 2020, figures released by the Bank of Ghana on September 28 showed.

 

In February this year, Ghana raised the longest-dated Eurobond in sub-Saharan Africa as part of an auction that raised $3bn and attracted bids exceeding $14bn.

 

The country sold $1.25bn in debt with an average life of seven years and a coupon of 6.375 percent, $1bn in 15-year bonds with a coupon of 7.875 percent, and a record $750m debt with an average maturity of 41 years and a coupon of 8.875 percent.