Financial analyst and banking consultant, Dr. Richmond Atuahene is warning that the government’s plan to re-enter the domestic bond market could spell disaster for the country’s already fragile economic recovery.
Ghana is currently battling its way back to fiscal stability following a historic domestic debt restructuring. The new government through its reset agenda it’s making plans to re-enter the domestic bond market, a move Dr. Atuahene believes is rushed.
According to him, the scars of Ghana’s 2022/2023 debt default and restructuring remain fresh, with investor confidence shattered and businesses struggling to secure much-needed capital.
He further argues that reintroducing government bonds into the local market prematurely could have far-reaching consequences, including skyrocketing borrowing costs, further capital flight, and an exacerbation of Ghana’s economic woes.
A Broken Financial System
In December 2022, Ghana made headlines globally when it announced a default on most of its external debt, amounting to $28.4 billion. On the domestic front, the government undertook an aggressive Domestic Debt Exchange Programme (DDEP), restructuring nearly GHS 203 billion out of an outstanding GHS 229 billion which achieved an 89% participation rate.
While authorities claimed the restructuring saved about GHS 60 billion and helped Ghana secure an IMF bailout, the consequences have been severe. Investor confidence plunged, banks saw their balance sheets severely weakened, and businesses were cut off from crucial credit access. This culminated in a struggling private sector, rising unemployment, and an economy gasping for liquidity.
In a research paper titled “The Politics of Government re-entry into Domestic Bond Market: ‘Is It a Myth or Reality?” and copied to The High Street Journal, he stressed that, “Ghana’s domestic debt restructuring in 2022/2023 stands out in Africa’s history of sovereign debt restructuring. The government of Ghana reported that it had achieved substantial savings of about GHS60 billion (approximately 30% of domestic debts and 7% of GDP) with minimal financial disruption using the domestic debt exchange program.”
However, the financial analyst further maintains that trust in Ghana’s debt instruments has been eroded and therefore it is dangerous to rush back into the domestic bond market before the wounds of the DDEP fully heal.
The Cost of Rushing Back
One of the key concerns raised is the potential increase in borrowing costs. Ghana’s ability to attract investors to its bond market has been deeply compromised, meaning the government will have to offer significantly higher interest rates to lure buyers. This, in turn, would push up the cost of borrowing for businesses and households, deepening the economic downturn.
Dr. Atuahene proposes that instead of issuing new bonds, Ghana should focus on reducing its total debt-to-GDP ratio to below 55% by 2028 and its external debt service-to-revenue ratio to under 18%—the targets set under its IMF-backed recovery plan.
“The negative consequence of DDEP, of course, has reduced trust in Ghana debt in the future,” he states.
He adds that, “As Ghana struggles to haul itself back to fiscal health it could be a disaster to re-enter into domestic bond market, why can’t the Government wait until 2028 when the country reduces the PV of total debt-to-GDP and external debt service-to-revenue ratios to 55 and 18 percent, respectively.”
A Crisis of Confidence
The biggest challenge facing Ghana’s bond market is trust. After a brutal restructuring that saw bondholders take significant losses, will investors be willing to return? According to Dr. Atuahene, the answer is unlikely, at least not at sustainable interest rates.
He says the government’s credibility in the debt market is at an all-time low. Investors, both foreign and domestic need time to regain confidence. Re-entry at this stage could backfire, forcing the government to borrow at unsustainable rates or, worse, face another default.
“After a default the Ghana government lost reputation and with it, its inability to provide liquidity domestically by issuing public debt. A scarcer domestic supply of public debt makes banks substitute away from the use of government securities to investments in their less productive projects,” he emphasized.
What’s the Alternative?
Rather than a hasty re-entry, Dr. Atuahene suggests that the government should prioritize fiscal discipline, revenue mobilization, and economic diversification to build a more resilient economy before returning to the bond market.
He emphasizes that sustainable debt management, rather than quick fixes, is the key to long-term recovery. As Ghana stands at a crossroads, the decision to re-enter the domestic bond market could define its economic trajectory for years to come.
Among a number of policy recommendations, he says the focus now should be working “hard to restore debt sustainability and bring the debt risk rating to “moderate” in the medium term. The PV of total debt-to-GDP and external debt service-to-revenue ratios will reach 55 and 18%, that is expected to be achieved in 2028. The government must work hard to improve on current weak indicators.”
Dr. Atuahene’s call is simple: Without addressing investor trust, fiscal sustainability, and economic resilience, the rush to re-issue domestic bonds could be catastrophic. He, therefore wants the government to hasten slowly and the needful to avert any long-term impact of such a move.
