- November 6, 2021
- Posted by: Ato
- Category: Economics
Half-year fiscal data showed a continued underperformance in government revenue with most of the expenditure limitation being in domestic interest payments, international research institution, REDD Intelligence has stated in its October 2021 report.
In the report dubbed “Ghana: Eurobond sell-off puts 2022 financing at risk”, REDD said “interest payments are likely to have been deferred and, if so, will need to be made at some point. As a consequence, the slippage, (-1.7% of GDP versus -1.1% target) in the primary fiscal deficit, which excludes interest payments, is more instructive than the overall fiscal deficit (cash basis) being within target (5.1% of GDP versus 5.2% target).”
It further said “as outlined in previous REDD Intelligence reports, it was near certain that the government would borrow heavily in the domestic market during the second-half of 2021, even if it had retained access to commercial external financing.”
This is because the government has, as expected, made limited progress on closing the large fiscal deficit, which reached 15.2% of GDP (on a cash basis) in 2020, according to the IMF. Further, the report pointed out that Ghana faces severe financing challenges ahead of the presentation of the 2022 budget in mid-November, as a sharp sell-off in its Eurobonds brings doubts over its continued access to international capital market financing.
“Increased skepticism over the government’s ability to finance itself is likely to result in a continued repatriation of non-resident funds from the domestic debt market in the 4th quarter of 2021, which will add to the financing squeeze”, REDD stated.
The government, it said, could present some deficit-cutting measures in the 2022 Budget, but investors are likely to demand more than optimistic revenue forecasts for Ghana’s Eurobond yields to close the gap with peers such as Kenya and Nigeria and fall to levels where new bond issuance will be feasible.
Domestic commercial banks and non-residents were the largest buyers of local-currency debt in August, increasing their holdings by GH¢2.8 billion (US$454m) and GH¢1.7 billion (US$279m), respectively. Non-resident investors increased their holdings of Ghana’s domestic debt from GH¢28.8 billion (US$4.8 billion) in January to a record GH¢36.7 billion (US$6 billion) in August 2021.
Previous waves of foreign inflows, REDD Intelligence says, have been connected to the government’s push to fund itself at longer maturities, most notably in half-year 2017 when foreign investors snapped up the majority of new 10- and 15-year bonds on offer. However, the inflows into the Ghanaian domestic debt this year have been into shorter maturities of one to six years by original maturity, with holdings of seven- to 20-year bonds moderating during the first nine months of the year.