International investors in the nation’s Eurobonds have signaled an unconvinced stance post the 2022 budget presentation, as evidenced by the spike in the yields of outstanding bonds, with some of them trading at distressed levels.
Prior to the budget presentation, investor confidence had deteriorated due to elevated concerns over the country’s sovereign fiscal and debt sustainability, which resulted in the sudden tightening of the Eurobond market against Ghana; with yields rising sharply in recent weeks by around 2.5 percent.
Domestic market analysts have described the initial signal – post-presentation – by the investors as worrying, adding that it could have a heavy bearing on government financing in the coming year and trigger further sustainability concerns among investors.
Analysing the initial reaction of investors, Senior Economist with Databank, Courage Kingsley Martey in an interview with B&FT said: “The first impression picked up from the market does not sound too good because immediately after the 2022 budget, we noticed a further spike in Ghana’s outstanding Eurobonds, with some of them trading at distressed levels. For instance, the 2026 paper witnessed a spike in its credit spread, taking its yield back above 10 percent.”
The sentiment was also shared by Fund Manager at OctaneDC, Solomon Tetteh who said the budget presentation has done little to allay investor concerns; saying proposals to increase tax receipts from the shadow economy have been unconvincing.
“On the Eurobond Market on Wednesday, investors remained pessimistic even after the budget reading. The budget statement, which was supposed to ease investor concerns over the debt levels, rather saw the opposite reaction on the market. The market witnessed heavy selling across the curve and bonds lost up to 5 points. In summary, investors were not convinced of efforts to generate tax revenue from the large informal sector through digitalisation as highlighted by the budget,” he explained.
Much to prove
However, Mr. Martey noted that regardless of the market’s initial reaction, there is a need for some more time to examine how investors will rate the government’s implementation of the 2022 budget.
He noted that antecedent events have fueled investor skepticism in government’s commitment and ability to follow through on its proposals. “It is not surprising at all that government is targeting a relatively lower amount for external bond issuance next year. I don’t think we have a choice of issuing bigger sizes if we look at how narrow a window, if any, that the market has left for a Ghana sovereign,” he said.
Adding, “In this kind of situation, the government can only signal a lower need for funds from the international capital market to prove to investors that there is a serious focus on debt sustainability. Overall, I think it is best to wait and see how the dust settles, give government some time to execute its fiscal plans, and observe how the economy evolves through the situation,” Mr. Martey added.
Echoing these thoughts, investment analyst at Nimed Capital, Joshua Adagbe stated that mere rhetoric would no longer fly in the state’s fiscal consolidation efforts, adding that the current situation would provide the sternest test yet for managers of the economy.
Despite admitting there exists much pressure to keep government spending high, particularly with subsidies, he expressed disappointment that the budget lacked clear guidelines on areas where the state could minimise expenditure as well as vague statements on tax exemptions and raising more in property tax.
“It is quite disappointing that very little was said on how to raise extra revenue from property rates and reviewing of the current tax exemption regime. Investors appear to have been interested in some of these.”