Less than two years after completing the Domestic Debt Exchange Programme (DDEP), the Government of Ghana is considering an early entry back into the domestic bonds market.
As part of efforts to restructure the country’s debt which was ballooning, the government on the instance of the International Monetary Fund (IMF) initiated a domestic debt exchange programme which closed on February 10th, 2023.
According to the Ministry of Finance, the DDEP achieved over 80% participation rate where eligible bonds were exchanged for new ones with longer maturity but lower interest rate.
Per international standards, governments that embark on debt restructuring take a longer time to return to the bond market.
But Ghana is looking to an early return to the country’s domestic bonds market to borrow funds to support the economy by next year. This was revealed by the Director of the Treasury and Debt Management Division of the Ministry of Finance, Samuel Arkhurst at the recent IMF/World Bank Meetings.
This early entry into the domestic bonds market, Mr. Arkhurst explains can be attributed to the favorable conditions in the context of the government’s fiscal framework of a two-year recovery period strategy.
In addition, the Director at the Ministry noted that stability in macroeconomic indicators such as inflation also offers a good condition for the government to issue bonds. According to Mr. Arkhurst, the decline in inflation from 54% to around 20% means the government will enjoy lower interest rates when they issue bonds.
“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,” the Director said in Washington DC.
He continued that, “if you were going to issue a bond when inflation was 54%, the real interest rate would be close to 60%. But with the current economic conditions and expected improvements in inflation, we anticipate a more favourable environment for issuing bonds.”
The opening of the bonds market next year to non-residents, Mr. Arkhurst said will enable the government to tap into a significant influx of foreign capital.
