Ghana’s dollar-denominated bonds have delivered the best returns among emerging markets in May, a remarkable comeback for the West African nation that defaulted on its debt just three years ago. This resurgence, as reported by Bloomberg, reflects growing investor confidence in the government’s economic management.
According to Bloomberg data, Ghana’s dollar bonds yielded an impressive 8.7% in total returns this month, significantly outperforming the average 0.4% return for emerging markets during the same period.
The dramatic turnaround is attributed to several positive economic indicators. Climbing gold exports, consistent trade surpluses, and a slowdown in inflation are bolstering both Ghana’s currency and its bonds. These factors are helping the nation recover after it sought assistance from the International Monetary Fund (IMF) in 2022 following its debt default.
President John Mahama, who secured victory in elections late last year, has implemented austerity measures, including cuts to government spending. These efforts aim to curb fiscal deficits and rein in inflation, which has significantly decreased to 21.2% in April from a peak of 54% in December 2022.
“Simply put, Ghana is back,” commented Kato Mukuru, head of research and CEO of Emerging and Frontier Capital, as quoted by Bloomberg. “Trends have remained positive and this must have supported the rally in the bonds.”
Further underscoring the economic improvement, the Ghanaian cedi has appreciated by 43% this year, making it the best-performing currency globally after Russia’s ruble.
Ghana is also making significant strides in debt reduction, on track to lower its debt as a percentage of gross domestic product below the IMF’s 55% target. Barclays Plc projects the government will achieve this target this year, three years ahead of the IMF’s 2028 deadline.
“The recent bond outperformance has been supported by an improved external position,” stated Samir Gadio, head of Africa strategy at Standard Chartered Plc, according to Bloomberg. “The cedi rally has likely underpinned bonds, as this should help lower debt ratios.”
