As part of measures to raise revenue and ease pressure on the central government, Chairman of the Research Committee at Tesah Capital, Professor Elikplimi Agbloyor, is recommending that managers of the economy consider lengthening the nation’s existing debt profile through the issuance of a 30-year domestic bond
Currently, the longest-tenured domestic debt instruments are a 6-year bond, a
7-year bond, a 10-year bond, and a 15-year bond, with the longest tenor being a
20-year bond introduced in 2019.
The 20-year bond – which was issued through a shelf offering ostensibly to
extend the tenor, yield curve, and establish a benchmark by deepening the
domestic market and leading a better price discovery as well as a deepening the
secondary market – missed its target amount of GH¢450million.
In an interview with the B&FT, Prof. Agbloyor – who doubles as an Associate
Professor in Finance at the University of Ghana Business School (UGBS) – stated
that the issuance of a long-term cedi-denominated bond would, among other
things, minimize the likelihood of default; which would, in turn, offer
investors some degree of confidence.
“In this conversation about what can be done on the monetary and fiscal sides,
one thing – which I have not seen much discussion around – is lengthening the
debt profile, in particular maturity of the debt. If we were to introduce, say,
a 30-year domestic bond, it would reduce the pressure on the government as we would
not have to pay immediately. Additionally, it could reduce our credit spread as
well as the estimated probability of default,” he stated.
He however noted that the current market conditions coupled with lingering
concerns over longer-dated bonds would make a local currency-denominated
instrument a tough sell.
Data from the Bank of Ghana (BoG) indicate that on a year-to-date basis the
cedi has depreciated by 15.8 percent, 8.2 percent, and 8.9 percent against the
US greenback, British pound, and euro, respectively.
Furthermore, headline inflation has jumped by 11 percentage points,
year-to-end-April, accelerating to 23.6 percent with little sign of abating.
“It is easier to issue these longer-term bonds if the economy is strong.
Looking at where inflation is currently, for instance, it is only to be
expected that investors would demonstrate some resistance,” Prof. Agbloyor
said. “But I still believe the longer-term security should be explored.”
Real interest rates, however, continue to remain negative, as the central bank’s
benchmark policy rate (19 percent) and that of the Treasury’s bills (91-day,
18.2 percent) are outpaced by inflation, resulting in investor hesitance.
This was evident when, in April, of the Treasury’s total target size of
GH¢5.21billion across 91- to 364-day bills, it was only able to raise
GH¢2.97billion from investors; missing the mark by GH¢2.24billion and
representing a 35 percent dip compared to what was recorded for the previous
month.
Source:
B&FT