By Toma Imirhe
Fiscal decision makers have decided that Ghana’s government should pivot away from the international sovereign bond market and back towards domestic debt issuance, following the strong market reception for its recent seven-year cedi-denominated bond issue which attracted robust investor demand despite offering a coupon rate of just 12.5%, which is just two-thirds of the coupon rates the country was paying on similar securities before being forced off the market in late 2022.
Indeed, a government statement last Friday confirmed that government is in no rush to return to the Eurobond market. This will put paid to speculations as to when and on what terms, Ghana would return to the Eurobond market now that it’s enforced three year hiatus has ended.
The recent domestic bond issue, which was oversubscribed and attracted bids of over GHc3 billion, has strengthened official conviction that the domestic market can once again serve as a major source of medium-term financing without exposing the country to the foreign exchange risks that ultimately precipitated Ghana’s debt crisis and eventual restructuring under the G20 Common Framework.
Senior officials at the Ministry of Finance and analysts in the local capital market say the success of the latest issuance is reshaping government’s borrowing strategy at a time when access to the Eurobond market remains prohibitively expensive for frontier economies such as Ghana.
Government’s recently announced plans to issue domestic bonds to finance cocoa purchases for the upcoming crop season is being viewed by market participants as a practical demonstration of the new strategy. Traditionally, cocoa syndicated loans sourced from international banks have provided foreign currency financing for purchases by the Ghana Cocoa Board, but officials are now increasingly exploring local currency alternatives to reduce external vulnerabilities.
“The recent bond issuance is a major signal that confidence in the domestic market is returning,” a senior official at the Ministry of Finance has said. “The appetite shown for the seven-year instrument demonstrates that investors are willing to take medium-term Ghana risk again.”
Government’s decision is also predicated on the stronger confidence that investors have in Ghana’s domestic issuances than they have in its international ones, because of the terms applied in the restructuring of both. The latest domestic issuance came after the completion of Ghana’s Domestic Debt Exchange Programme (DDEP), under which local bondholders accepted lower coupons and extended maturities but did not suffer reductions in principal amounts invested. That contrasts sharply with the treatment meted out to holders of Ghana’s Eurobonds, who incurred substantial haircuts under the country’s external debt restructuring agreement.
Market analysts say this distinction has become critical in restoring local investor confidence.
“Domestic investors took pain during the DDEP, but they retained confidence because principal was preserved,” says an Accra-based fixed income strategist at an international investment bank. “Eurobond investors, on the other hand, suffered deep losses and remain wary of Ghana’s sovereign risk profile.”
Indeed, the government’s recent success in raising long-term domestic funding has reinforced concerns within official circles over the cost of returning prematurely to international capital markets at a time of dented confidence in Ghana and wider monetary tightening globally.
Before Ghana suspended payments on most of its external debt in late 2022, the country had become one of Africa’s most active Eurobond issuers, regularly tapping global markets for billions of dollars to finance infrastructure, budget deficits and liability management operations.
However, those borrowings became increasingly unsustainable as the cedi weakened sharply, foreign exchange reserves dwindled and global interest rates surged following aggressive monetary tightening by the United States Federal Reserve and other major central banks responding to post-pandemic inflation.
Current geopolitical tensions in the Persian Gulf and Eastern Europe are adding renewed inflationary pressures globally through higher energy and logistics costs, further reducing the likelihood of meaningful interest rate cuts in developed economies anytime soon.
Analysts estimate that if Ghana attempted a fresh Eurobond issue in current market conditions, investors could demand yields of between 13% and 16% in dollar terms levels that many economists argue would be fiscally dangerous.
“Any new Ghana Eurobond today would almost certainly price in the mid-teens,” says an economist at Databank Group. “When you add the exchange rate risk and the country’s recent default history, the effective cost becomes extraordinarily high.”
At such rates, a new Eurobond could ultimately cost government far more than domestic borrowing, especially if the cedi depreciates significantly over the lifespan of the debt.
That concern is now influencing policy thinking.
“This is about reducing forex exposure within public sector financing structures,” asserts a treasury analyst at a local commercial bank. “Government has realised that excessive dollar borrowing creates severe refinancing and currency risks during periods of external shocks.”
Nonetheless, analysts caution that relying too heavily on domestic borrowing also carries risks, particularly the possibility of crowding out private sector access to credit if banks and institutional investors channel disproportionate funds into government securities.
“There is still a balancing act required,” notes an economist at Institute of Statistical, Social and Economic Research. “Domestic borrowing is safer from a currency standpoint, but overdependence can constrain private sector lending and economic expansion.”
Consequently, financial experts say Ghana may increasingly explore alternative international debt instruments capable of providing foreign exchange financing at lower costs than conventional Eurobonds.
Among the options being discussed are Diaspora Bonds targeted at Ghanaians living abroad. Such instruments have been used successfully by countries including India and Israel to mobilise relatively stable foreign currency funding from patriotic investors willing to accept lower yields than mainstream international markets demand.
Analysts say Ghana could potentially raise several hundred million dollars through a well-structured Diaspora Bond, particularly if linked to identifiable development projects or enhanced with tax incentives.
However, concerns remain over credibility and trust following Ghana’s recent debt restructuring, which may limit appetite unless strong legal protections are provided.
Another option under consideration is the issuance of Panda Bonds in China’s domestic capital market. Panda Bonds allow foreign governments and corporations to raise renminbi-denominated financing from Chinese investors.
Financial analysts argue such instruments could diversify Ghana’s investor base while potentially securing lower interest rates than Western capital markets currently offer.
But Panda Bonds also come with complications, including currency convertibility issues, regulatory requirements in China and the strategic implications of increasing exposure to Chinese financial markets.
“There is no perfect solution,” says a sovereign debt analyst with a multinational advisory firm. “The key lesson from Ghana’s recent crisis is that the composition and structure of debt matter just as much as the amount borrowed.”
For now, government appears convinced that the domestic market offers the most prudent path forward as it seeks to rebuild fiscal credibility and avoid repeating the vulnerabilities that pushed the country into default barely three years ago.
The strong response to the recent seven-year bond may therefore mark not merely a successful issuance, but the beginning of a fundamental reorientation in Ghana’s sovereign financing strategy.
