Ghana Misses Out on African Bond Rally on Election Concerns

(Bloomberg) -- Ghana is missing out on a rally of African bonds as investors fret about an expansion in spending and borrowing ahead of elections in December.

The elevated borrowing to cover the spending shortfall has seen the country’s three-year and longer-dated local bond yields rise on the secondary market even as those of its peers on the continent are falling. This is likely to increase future cost of issuing new debt at a time it can hardly afford it.

Yields on the 849 million-cedi ($146 million) three-year bond issued in April have climbed to 19.2% currently after falling to a low of 18.7% on Aug. 19. Over the same period yields on Nigeria’s 859 million-naira ($2.3 million) 2023 notes declined to 2.7% from 5.5%. Five-year notes Ghana sold in June have climbed to 20.5% from 19.8% while similar maturity papers in Nigeria eased to 3.1% from 6.4% over the same period.

Nigerian bonds are not the only ones performing better than Ghana as the AFMI Bloomberg Africa bond index, which tracks the performance of local-currency bonds of key economies rallied to 10.2% on Monday from 10.9% at the end of August and a peak of 13.4% in March when the coronavirus pandemic struck the continent.

Ghana, the largest economy in West Africa after Nigeria, raised its budget deficit target for 2020 to 11.4% of gross domestic product in its mid-year budget review in July from an initial forecast of 4.7%., citing the impact of the coronavirus pandemic.

Healthcare related expenditure and “massive” road construction ahead of the vote may see the actual deficit rise to 12.5% of GDP, Accra-based investment bank, Databank Group, said in a note to clients last week.

“Ghana’s fiscal deficit is likely to be among the highest on the continent but what really singles it out is the high interest-cost to government revenue ratio,” Mark Bohlund, a senior credit analyst at REDD Intelligence, said in emailed response to questions.

Ghana’s interest payments in the first-half were 11.6 billion cedis, compared with 22 billion cedis of revenue plus grants. Public debt expanded 20.6% in the first seven months of 2020, faster than 18.6% last year, Databank said.

“Fiscal risks ahead of the elections are adding to virus-related spending pressure in Ghana,” Samantha Singh, a Johannesburg-based Africa strategist at Absa Bank Ltd., said in an email. “The market may be cautious at this stage of the election cycle.”

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