• Ghana, Rwanda issued their longest-maturity local debt
  • Rwanda sale oversubscribed, Ghana offer misses target

It was a tale of two African bond auctions: a Rwandan offer of 20-year debt at 13.25% was oversubscribed, while Ghana’s sale of similar-maturity notes at more than 20% flopped.

For both nations, the sales represented their longest-maturity local-currency debt yet. Ghana placed 162.1 million cedis ($30 million) at 20.2%, less than half the target of 450 million cedis.

Rwanda, whose economy is a sixth the size of Ghana’s, drew bids for 1.4 times the amount offered as it easily met its target of 15 billion francs ($16 million).

Both economies are growing rapidly, with Ghana’s forecast to expand 7.1% in 2019 from 5.6% last year, while Rwanda is seen maintaining its 2018 output rate of 7.6%.

But it’s their debt levels where the differences emerge, with Ghana’s at 58.1% of gross domestic product at the end of May, from 51.6% the year before, while Rwanda’s were at 53.1% of GDP at the end of 2018.

Annual inflation accelerated to 9.4% in Ghana at the end of July, compared with 1.6% in Rwanda.

“Rwanda is a much smaller economy but a lot of the macro-economic numbers are scoring better than Ghana,” Christian Mejrup, a Kokholm, Denmark-based senior portfolio manager at Global Evolution A/S, said by phone. “If you look at the debt numbers, the inflation numbers, definitely they are very different than Ghana.”

It’s not only local-currency investors who are more keen on Rwanda’s debt. The country’s Eurobonds are outperforming Ghana’s too.

Politics are also a worry. After Ghana completed a four-year International Monetary Fund program in April, investors are concerned that the country won’t maintain fiscal discipline in the run-up to elections in December 2020, said Mejrup. The last time the country went to the polls in 2016, its budget deficit ballooned to more than 8% of gross domestic product.

“Every time we enter an election in Ghana we’re all quite worried about the fiscal performance and the outcome of the elections,” said Mejrup. “Rwanda has been enjoying a stable political regime for many years.”

Ghana raised its fiscal deficit projection for the year to 4.5% of gross domestic product from 4.2% in a mid-year review of the budget, while the cedi has declined about 10% against the dollar this year. The Ministry of Finance warned earlier this month that the country is at “high risk” of debt distress.

“The yield pick-up is not sufficient to compensate for the risk,” Mark Bohlund, an Africa economist at Bloomberg Economics, said in an emailed response to questions. “If you’re a foreign investor then you not only care about the yield on the bond but also at what exchange rate you can repatriate your money.”

Credit: Bloomberg

(By Moses Mozart Dzawu With assistance by Vernon Wessels)