Fitch Solutions says the Ghanaian government is unlikely to issue Eurobonds at attractive yields in the short term even if it secures an International Monetary Fund (IMF) support programme this month or in the next couple of months.
Announcing in its February 2023 Africa Monitor Report, the company stressed the rising interest rates which increased to 28% at the beginning of last year makes domestic borrowing more expensive.
“First, Ghana faces external financing constraints. Indeed, the country has been cut off from the international capital market since late-2021 due to subdued investor confidence. While an expected IMF deal in Quarter 1, 2023 will gradually improve market sentiment, it is unlikely that the government will be able to issue Eurobonds at attractive yields in the short term”.
“In addition, the IMF programme (expected to be worth $3 billion over a three-year period) would only finance a portion of the targeted deficit”, it explained further.
Furthermore, Fitch Solutions noted that domestic borrowing has become more expensive as a result of rising interest rates, adding that considering that Ghana already pays high interest rates, a major rise in domestic debt issuance will undermine fiscal dynamics further.
It also stated that domestic banks would be less likely to lend to the government in 2023 as a result of the domestic debt swap program.
Nonetheless, it made clear that the government’s ambitious expenditure plans will raise the public debt to gross domestic product (GDP) ratio.
The public debt-to-GDP ratio is predicted to increase until 2028, at which point it will begin to decline.
It said there is a risk that the IMF could express concerns about Ghana’s 2023 budget given the elevated spending target.
As a result, the government might be forced to alter its fiscal plans, which would prolong the bargaining process.
