…by replacing sovereign ratings with credit insurance
Borrowing on commercial markets for most African countries remain at a high cost to government, but there is the prospect of this situation changing in the case of Ghana following the attainment of a member status with the African Trade Insurance Agency (ATI).
Under the ATI arrangement, government will attract lower cost of financing with longer durations using ATI’s Sovereign Credit Wrap, an innovative insurance solution which replaces sovereign rating with ATI strong rating.
Expectantly, this will go a long way in supporting the implementation of government’s medium-term debt management strategy.
The 2019-2022 Medium-Term Debt Management Strategy (MTDS) seeks primarily to diversify the investor base and currency structure of the public debt portfolio. Accordingly, the strategy focuses on reducing the refinancing risks embedded in the debt portfolio through liability management operations and development of domestic debt markets.
The Finance Minister, Ken Ofori-Atta in a statement said, “the government can as other West African member countries of ATI have done, use ATI’s insurance to attract commercial financing at the levels of more developed economies. This means financing on better terms and longer duration, which can help pay off more expensive debts and create a more sustainable debt management process.”
“The IMF has looked favorably on this strategy in other countries and we look forward to exploring this possibility,” Ofori-Atta stated.
On February 4, 2020, government completed the issuance of a US$3 billion Eurobond in three installments with interest rates which are better than what was realized in similar bonds issued in 2019.
The three-tranche bonds were sold with 7-year, 14-year, and 41-year maturities.
Government accepted US$1.25 billion for the 7-year-bonds at a coupon rate of 6.375 percent. It was also successful in securing US$ 1 billion with a maturity period of 14 years at a rate of 7.75 percent.
The country also issued at a competitive rate of 8.75 percent for the 41-year Weighted Average Life (WAL) tranche of US$ 750 million, which matures in 2061. This is the longest-ever tenor bond issuance by an African issuer, and compares to a rate of 8.95 percent on the 31-year bonds issued in 2019.
Medium-Term Debt Management Strategy (MTDS)
Based on the medium-term fiscal policy, government is adopting financing options that support its infrastructural projects and programmes whilst taking cognizance of the cost of debt and minimising refinancing risks in the government’s public debt portfolio.
The 2020 debt strategy focuses on an appropriate financing mix to mitigate the costs and risks to achieve the desired composition of the public debt portfolio with respect to borrowing from external and domestic sources.