2021 Eurobond could attract higher yields over debt pile-up - Lord Mensah

Economist Dr. Lord Mensah says the recent warning sounded by the International Monetary Fund (IMF) over Ghana’s rising debt levels could lead to investors demanding higher yields on the government’s planned Eurobond issuance scheduled for early 2021.

Ghana’s parliament on Tuesday approved the government’s move to raise between US$3bn and US$5bn on the Eurobond market to support the 2021 budget and liability management.

The IMF had projected Ghana’s debt-to-GDP to end the year at 76.7 percent in its Regional Economic Outlook for sub-Saharan Africa released on October 23.

The rising debt levels coupled with low revenue performance and sluggish economic growth induced by the Covid-19 pandemic will feature prominently in investor considerations when the government holds the roadshow for the bond early next year.

“Borrowing on the heels of the IMF sounding a caution on your debt level will lead to higher interest rates,” Dr. Mensah told Business24 in a telephone interview.

The Minority in Parliament raised concerns over the impact of the Eurobond issuance on the country’s debt stock when the request for approval was tabled on the floor of Parliament.

Dr. Mensah urged the government to instead cut capital expenditure, strengthen the fiscal rules, phase out off-budget operations and improve domestic revenue performance.

“If your revenue performance is low, you cut expenditure to ensure a balance. You don’t go about borrowing to finance capital expenditure to increase the fiscal deficit,” the University of Ghana Business School lecturer said.

The country’s debt level rose to 68.3 percent of GDP (GH¢263bn) at the end of July 2020, figures released by the Bank of Ghana on September 28 showed.

In February this year, Ghana raised the longest-dated Eurobond in sub-Saharan Africa as part of an auction that raised $3bn and attracted bids exceeding $14bn.

The country sold $1.25bn in debt with an average life of seven years and a coupon of 6.375 percent, $1bn in 15-year bonds with a coupon of 7.875 percent, and a record $750m debt with an average maturity of 41 years and a coupon of 8.875 percent.