Investor confidence in Ghana’s domestic bond market could see a rebound, but only if the government maintains fiscal discipline, according to Joe Jackson, Chief Executive Officer of Dalex Finance.
“We can return to investing in local government bonds, but we must do so with our eyes open: watching inflation, monitoring the government’s commitment to reducing expenditure, and observing efforts to keep the cedi stable,” Jackson said.
He emphasized that a stable macroeconomic environment is crucial to restoring trust in the local bond market. “If the government stays on this path, there is no reason we shouldn’t begin investing in local bonds again,” he added.
Jackson’s comments come as Ghana continues efforts to rebuild its economy, buoyed by a recent appreciation of the cedi and renewed focus on inflation management.
Why Did Investors Exit?
Investor participation in Ghana’s secondary bond market dropped sharply following the launch of the Domestic Debt Exchange Programme (DDEP) in early 2022. The initiative restructured over GH₵137 billion of domestic debt, replacing existing bonds with new instruments that came with extended maturities and significant “haircuts” of up to 40 percent on principal and interest.
This loss triggered a crisis of confidence, particularly among institutional investors like pension funds, many of whom were forced to classify the new bonds as hold-to-maturity. This move drained liquidity from the secondary market and discouraged trading.
Yields on long-dated bonds soared to over 20 percent, but investors found them unattractive due to the high risk premia demanded and the allure of safer short-term Treasury bills, which offered yields between 15–18 percent.
Further deterring investors was the uncertainty around whether additional restructurings might occur, raising the risk of future haircuts. Compounding these concerns were Ghana’s elevated borrowing rates and rising debt levels, which many considered unsustainable.
Signs of Recovery?
Some investors say the government recently appears to be on the right path, citing recent signs of fiscal consolidation and discipline. These efforts have led to a decline in interest rates, reduced domestic borrowing pressure, and a stronger cedi, now trading at approximately GH₵14.55 per US dollar, up from GH₵16.53 in November 2024, marking an 11% appreciation.
They believe that if the government continues to pursue prudent fiscal policies and maintains macroeconomic stability, confidence in the domestic bond market could gradually return.
However, with memories of the DDEP still fresh, many remain cautious. For now, investor re-entry into the domestic bond space appears contingent on one critical factor: discipline, fiscal, monetary, and political.
