• Eurobonds rally after Ghana’s about-face on IMF program
  • Country has $7.3 billion principal payments by 2032: Moody’s

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

The West African nation’s Eurobond maturing in 2027 rose 1% to 65.82 cents in the dollar by 2:52 p.m. in Accra, the capital, the highest in more than six weeks. The bonds had been trading at distressed levels, with yields above 20%, 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. “An IMF program may also provide some gravitas to the government’s claims of fiscal reform.”

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

The inflation rate rose to more than an 18-year high of 27.6% in May. The economy, which grew 5.4% last year, expanded less than expected in the first three months of 2022 at 3.3%. Public debt increased to 78% of gross domestic product at the end of March from 76.6% in December.

Debt Vulnerabilities

“A potential IMF program could play an important role in helping the country entrench its fiscal consolidation path and reduce debt vulnerabilities,” said 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.”

An IMF team will be in Ghana to start talks with the Ghanaian authorities from July 6, Information Minister Kojo Oppong Nkrumah said on Monday. 

While rollover risk is expected to intensify for many African sovereigns over the next decade, due to the war in Ukraine, lower-rated borrowers like 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 stabilize 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.”

Credit: Bloomberg

(By Moses Mozart Dzawu)