Ghana's Eurobond yields 'unfortunate' – IMF

The International Monetary Fund (IMF) has described as unfortunate the 10.75 percent yields government accepted on the $1 billion Eurobond issued recently.

Last week, the Finance Ministry announced at the end of the Eurobond road show that it has secured a $1 billion facility with a 15-year maturity period at a coupon rate of 10.75 percent, amidst concerns that the facility is costly.

In an emailed response, a spokesperson of the IMF said: "An important element of Ghana's iMF-supported programme is strong fiscal adjustment, underpinned by fundamental reforms, to restore macroeconomic stability".

According to him, restoring macroeconomic stability is a key thing that will ensure the country's debt remains sustainable.

Ensuring that the country's debt is sustainable is a critical component of Ghana's IMF- supported programme, which also includes a debt management strategy that has been designed to ensure risks associated rollover are minimised.

But the facility, which the Finance Minister Seth Terkper had insisted will be used to refinance maturing domestic debt as well as some infrastructural developments, came at a rather higher cost, the IMF said.

"Unfortunately, current market conditions have pushed borrowing costs higher," Mr. Kanyegirire told the B&FT.

According to the Finance Ministry, the country's total debt stock as at July stands at ?83 billion - of which domestic debt makes up ?36.5 billion.

As per government's plans as spelt out in the 2015 revised budget, total interest payment is estimated at GH?9.34 billion. Of this amount, ?1.6 billion will be expended on external interest while GH?7.7 billion will be for domestic interest payments.

But with the Eurobond's impact on the country's public debt, the Senior Communications Officer hinted the Washington-based lender will review the country's debt management strategy in coming months.

"The debt management strategy is something that is continuously reviewed to address emerging risks and less favorable market environment is something that will need to be factored in going forward," he added.

Eurobond journey

Despite announcing that it would borrow US$1.5 billion from the international market, a statement issued by the Finance Ministry last week showed government has reduced that amount, having accepted an offer for $1 billion.

The release issued by the Finance Ministry said the bond is a soft amortising bond, meaning that it will mature in years 2028, 2029 and 2030 with principal repayment in three installments of $333 million in years 2028 and 2029, and $334 million in 2030.

Explaining why government watered-down its initial target, Finance Minister Seth Terkper explained that the approval passed by parliament granted government the leeway to raise up to $1.5 billion, subject to market conditions.

Essentially, according to the Finance Minister the figure is not absolute - and is subject to market conditions.

Unlike the previous bonds, which had 10-year maturity periods, the latest has a 15-year maturity period - making Ghana the first country apart from South Africa in sub-Saharan Africa to issue a bond of such nature.