Concerns had been raised about the ballooning debt stock levels which could push the nation into a debt distress country.
But according to Ecobank Research Report, the government’s plan of re-profiling the debt and its management of the Ghanaian economy is consistent in bringing down the debt levels.
“While the recent ramp-up in Sub Sahara African debt issuances has increased concern over a looming external debt crisis in SSA, more so with Ghana where the Eurobond sale has increased the external debt stock to USD$9.2bn by our estimates and tilts the GHS-US$ debt mix to 54:46 (Dec. 2016 56:44), consistent with government’s plan to reduce domestic borrowing, we remain cautiously optimistic that the country’s debt profile will remain manageable”, the report noted.
It further explained that “This is on the basis that the government continues with its fiscal consolidation plan and that the economy will grow strongly by 6.6 percent in 2018, increasing prospect for higher revenue generation.”
Moreover, it stated that the government’s plans to use part of the proceeds to refinance debt and re-profile debt by increasing supply of longer-dated instruments will translate to lower borrowings via reduced local debt issuances.
In view of these factors, it said foreign reserves is expected to rise above US$7.0 billion (4 months of imports) from US$6.9 billion (3.8 months) in February 2018 and bolster the positive bias on the Ghana cedi outlook.
Investor confidence surges
The report also revealed that investor confidence in the Ghanaian economy continues to soar after the nation registered the lowest coupon rate of 7.627 percent ever in Sub Saharan Africa for the 10 year US$1bn Eurobond issued recently. The debut 30-year Eurobond was also issued at par at 8.627 percent.
Looking ahead, it emphasized that “an improved fiscal revenue profile and increased US dollar borrowings translate to lower GH cedi debt issuance and greater cost sensitivity at monthly Ghana cedi bond auctions”.
The Ghana cedi yield curve is declining in line with BoG’s easing stance amid a slowdown in inflation and a pro-growth policy bias.
In addition, the report noted increased foreign participation in longer term debt issuances and lower local debt issuances are likely to maintain attraction on Ghana cedi-denominated assets and to increase the scope for further yield decline over 2018.
This it believes would support the Ghana cedi to remain broadly stable, trading around GHS4.40-4.50:US$ by the end of quarter two 2018.
Ghana’s recent Eurobond issuance is expected to help the nation benefit from a deep and liquid capital market as it extends the USD debt curve. Proceeds from the sale will be used to redeem US$750m worth of Ghana’s 2022 Eurobond, while another US$750m will be used to finance infrastructure projects while the remainder is kept as part of foreign reserves.