Ghana May Have To Run To IMF For Another Bailout – Economist

An Economist and Fixed Income Strategist at FirstRand Bank in Johannesburg, Neville Mandimika, has projected that the country’s debt trajectory will soon force it to return to the IMF for a bailout.

This is in the wake of a Bloomberg survey that says that the country with a whopping Ghc335billion debt burden may have to pay a higher premium if it returns to the international capital market next year to issue a Eurobond.

Ghana’s credit-risk premium soared to the highest since the start of the Covid-19 pandemic ahead of next month’s budget.

“Do they still have access to the Eurobond market at these levels? Could they issue one at a reasonable price? “The answer seems to be no,” said Neville Mandimika, an Economist and Fixed Income Strategist at FirstRand Bank in Johannesburg. 

Ghana has historically relied on funding from the Eurobond market to fund expenditure.

But limited access to international loans could force the government to supply more debt locally, which would be detrimental to cedi yields as banks and institutions already own about 80% of the financial instrument according to an analysis by Accra-based Joy Business.

Ghana’s dollar bonds were the worst performers this month in a Bloomberg index tracking emerging-market hard-currency debt, with a decline of 5.8%. The 2025 yield jumped 153 basis points on Monday, 18th October 2021, the most in a day on record since the debt began to trade in April 2021.

It climbed a ninth consecutive day on 20th October 2021 by 4.0 basis points to 11.28%, the highest on record.

“At this point, they need to present a credible plan B on how they fund the budget in the absence of Eurobond issuance,” said Mr. Mandimika.

“In a worst-case scenario where debt is growing amid a global risk-off mood, Ghana may have to head back to the IMF,” he added.

Meanwhile, the country’s revenue fell short of the target by 12% to ¢34.3 billion ($5.66 billion) in the first seven months of the year and may continue to do so, putting pressure on its economic growth outlook.

Economists from Redd Intelligence, Renaissance Capital and Capital Economics who spoke to Bloomberg are already forecasting annual expansion to stay well below the target of 5% in 2021.

Slower-than-anticipated growth will also make it harder for Ghana to fund its budget deficit, which is expected to return within the legislated threshold of 5% of Gross Domestic Product by 2024, after breaching it last year.

The analysts have also expressed worry about the widening credit spreads that raise questions about the country’s debt trajectory.