Ghana Eurobonds extend gains as IMF expected to ease financing stress

Ghana’s dollar bonds gained for a second day amid investor optimism the country’s decision to seek an International Monetary Fund programme will ease refinancing stress.

Ghana’s Eurobond maturing in 2027 rose one per cent to 65.82 cents in the dollar, the highest in more than six weeks.

 The bonds had been trading at distressed levels, with yields above 20 per cent, before Ghana announced last week it will engage the IMF for balance-of-payments support.

“The market had been concerned over the government’s financing needs in the short term,” said Stephen Bailey-Smith, a Kolding, Denmark-based investment strategist at Global Evolution said.

“An IMF programme may also provide some gravitas to the government’s claims of fiscal reform,” he said.

While Ghana aims to cut its budget shortfall to 7.4 per cent of gross domestic product this year from an estimated 12.1 per cent 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.

Inflation rate rose to more than an 18-year high of 27.6 per cent in May. The economy, which grew 5.4 per cent last year, expanded less than expected in the first three months of 2022 at 3.3 per cent.

Public debt increased to 78 per cent of gross domestic product at the end of March from 76.6 per cent in December

Debt Vulnerabilities

“A potential IMF programme could play an important role in helping the country entrench its fiscal consolidation path and reduce debt vulnerabilities,” Samantha Singh, a Johannesburg-based Africa strategist at Absa Bank Ltd.

“The sooner these policies are implemented, it could also reduce the severity of any potential liability management,” she said.

An IMF team is in Ghana to start talks with the Ghanaian authorities.

While rollover risk is expected to intensify for many African sovereigns over the next decade, due to the war in Ukraine, lower-rated borrowers such as Ghana, Tunisia, Kenya, and Egypt are already facing difficulties securing market-based financing and are vulnerable to a rise in borrowing costs, Moody’s Investors Service said in a report last week.

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.

The IMF and other multilateral lenders helped stabilise vulnerable African markets through emergency funding during the pandemic, but not all of them chose to accept assistance, said Kaan Nazli, a money manager at Neuberger Berman.

 “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 said.

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