The International Markets have reacted positively to the news that Ghana has passed the third review of its Extended Credit Facility with the International Monetary Fund.
This is reflected in the performance of the 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 at 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.
When reached for his comments by Daily Graphic, 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 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 government is very committed to the programme, and also government 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 reduced from 4.4 percent of gross domestic product (GDP) in 2014 to 0.02 percent 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 tenure 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. The Deputy Minister said that investor scepticism was one of the reasons why the yields on the Ghanaian bonds were high. However, another reason was the overall rise in interest rates during this 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 is 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.”
Last week, a team from the International Monetary Fund (IMF), led by Joël Toujas-Bernaté, after their third review concluded that implementation of the programme so far remained broadly satisfactory.
It said: “Most of end-December 2015 performance criteria were met, with the exceptions of small deviations in the wage bill and net domestic assets of Bank of Ghana (BOG).
“Despite the more difficult global environment, with lower commodity prices and domestic power shortages, economic growth in 2015 was close to four percent, slightly higher than expected. Inflation, which remains still high at 19.2 percent 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.”