The government plans to re-enter the domestic bond market sooner than expected after completing its debt restructuring in September 2023.
It aims to allow non-resident investors back into the market as early as next year, showing confidence in the country’s economic recovery. This is much faster than the usual two to four years it takes for countries to return to the market after restructuring.
Samuel Arkhurst, the Director of Treasury and Debt Management at the Ministry of Finance, mentioned this at a media event during the IMF/World Bank meetings in October 2024.
He explained that this timing fits well with Ghana’s economic plan.
“The last time we issued a bond was in September 2022, well before launching the DDEP in January 2023. We completed the entire process by September 2023,” he noted.
He explained that the nearly two-year gap between stopping bond issues and the planned reopening fits with Ghana’s recovery goals. While most countries take longer to return to the market after restructuring, Ghana is aiming for a quicker comeback.
The decision to allow foreign investors into the domestic bond market next year is due to the positive conditions in the country’s financial plan.
Mr. Arkhurst explained: “When you take a look at the entire fiscal framework, you realise that the restructuring took care of all domestic and external bonds. What it meant for our financing was a reliance on Treasury bills, which has been factored into the budget deficit and fiscal framework consistently. This is in line with our two-year recovery period strategy”.
Inflation, which peaked at 54 percent in 2022, has since been a significant concern affecting market access. However, Mr. Arkhurst highlighted the improvement in inflation figures – noting the potential for normalisation in 2025. Inflation has been on a disinflationary path and is currently at 22.1 percent for October 2024.
He pointed out: “If you were going to issue a bond when inflation was at 54 percent, the real interest rate would be close to 60 percent. But with the current economic conditions and expected improvements in inflation, we anticipate a more favourable environment for issuing bonds”.
The Director acknowledged that while non-residents have been restricted from the domestic market, their demand for access remains high. He mentioned that current legal frameworks limit non-residents to bonds, as Treasury bills are not open to them. The bond market’s anticipated opening next year is aimed at tapping into this demand, potentially unlocking a significant influx of foreign capital.
Regarding the Eurobond market, Mr. Arkhurst clarified that market access does not necessarily equate to immediate issuance. “Access means having the favourable conditions and appetite from investors, even if you are not issuing immediately,” he explained.
The government is taking a careful approach as it keeps an eye on how investors feel and the overall economic situation before deciding when to issue bonds.
According to Apakan Securities’ review of the third quarter of 2024, trading in Ghana’s bond market picked up after a slow second quarter, which had the lowest activity since the end of 2022. A total of GH¢47.31 billion worth of bonds were traded, showing a big increase—53% more than the previous quarter and 158% higher compared to the same time last year.
This recovery was mainly due to payments being made on all DDEP bonds, which helped improve market conditions and liquidity.
The interest rates on medium-term bonds went up by an average of 7.56% from the previous quarter, ranging from 26.35% to 28.85% by the end of the quarter. Longer-term bonds also saw an increase in interest rates, up by 3.66% on average, with rates between 19.85% and 30.58%. Investors were particularly interested in bonds maturing in February 2027 and February 2028.