Ghana to return to IMF amidst ballooning debt – Economists

Financial experts have cautioned the government against its appetite of borrowing, especially from the international market, as they predict Ghana is likely to return to International Monetary Fund (IMF) for debt sustainability support.

They believe that the increasing interest costs of international bonds on the capital market will take a huge toll on the government’s finances and liquidity in the economy.

The situation, already, is adversely affecting businesses in accessing funds to expand and develop. As government’s inability to raise funds from the international market has pushed it to resort to borrowing from the domestic market, stifling businesses from needed funds.

“It’s going to have an impact on our economy. I mean the bonds that we’ve floated because obviously once the premium yield goes up, we should expect that every investor would require a higher rate as far as our bonds are concerned”, Professor Lord Mensah, lecturer at the University of Ghana Business School has said. “We should expect higher rates on any issue [new bonds or rollover]. It will affect the possible floatation that we’re going to do in future. Businesses will also be affected in a way because once interest rates go up in a certain environment; it increases the cost of operations. Even the banks struggle to raise funding.”

Also, an Economists and Fixed Income Strategist, Neville Mandimika, has indicated that, in the best-case scenario is for Ghana government to return to IMF as the public debt keeps ballooning.“At this point, Ghana needs to present a credible plan B on how they would fund the budget in the absence of Eurobond issuance adding, do they still have access to the Eurobond market at these levels? Could they issue one at a reasonable price? The answer seems to be no.”

“In a worst-case scenario where debt is growing amid a global risk-off mood, Ghana may have to head back to the IMF,” the economist is quoted in a Bloomberg Survey.

Ghana’s current public debt stock stands at around GH¢336 billion ending July 2021. A figure that could hamper economic growth and recovery efforts. In a recent Bloomberg survey, Ghana was shown to likely pay a higher premium should it return the issue more Eurobonds on the international capital market in 2022.

Though Ghana has often relied on Eurobond issuance to fund government expenditure, the nation’s credit-risk premium has risen to the highest since the onset of the coronavirus pandemic. In addition, the Bloomberg survey pointed that limited access to loans from foreign entities may force the Government of Ghana to supply debt domestically. A decision that could hamper gains made by the local currency, the cedi. Per a Bloomberg Index conducted in October 2021, Ghana’s US dollar bonds were the worst-performing instrument. The index which tracked the emerging-market hard-currency debt recorded a decline of 5.8 percent.

By Adnan Adams Mohammed