Ghana's budget battles weighing on cedi debt as inflation soars

Ghana’s battle to rein in its budget deficit and accelerating inflation is weighing on Treasury bills, with yields on benchmark 91-day notes renewing 2012’s climb.

A fiscal gap that widened to 10.2 percent of gross domestic product last year is adding to government financing needs in the world’s second-biggest cocoa producer.


The Bank of Ghana is offering 533 million cedis ($221 million) of short- and medium-term notes at an auction today. Yields on 91-day debt, which are used as a guide by banks in setting their lending costs, rose for five straight weeks to 19.6 percent on Jan. 17, the highest since Nov. 1, according to data compiled by Bloomberg.


The central bank aims to hold the rate at 18 percent to 19 percent, according to Angus Downie, London-based head of economic research at Ecobank Transnational Inc. “This could prove challenging given high inflation expectations and concerns over further currency weakening,” he said.


The central bank sold 1.06 billion cedis of 91-day notes in the first three weeks of this year, up 10 percent from 2013, according to information on the website of the Bank of Ghana. The West African nation is targeting a budget deficit of 8.5 percent of GDP this year, which Fitch Ratings predicts will be missed. Inflation quickened to 13.5 percent in December, the highest of 2013 after the figures were rebased.


“Considering the demand from government so far this year, I forsee short term rates going up,” Elvis Darku, head of fixed-income trading at the Ghanaian unit of Lagos-based Access Bank Plc, said by phone Jan. 22. “I don’t see the trend changing before the likely Eurobond sale in April.”

Ease Pressure


The rate may rise to 22 percent by the end of the first quarter, before the dollar-debt sale that will help ease pressure on domestic borrowing, Darku said. By the end of the year, 91-day yields are seen at 21 percent, he said.


After receiving cash from a $1 billion Eurobond sale in July, Ghana’s 91-day rate eased from 22.989 at the first auction in August to 18.663 percent by Nov. 29. The rate rose 93 basis point by the end of the year. Ghana plans to boost cedi-denominated issuance by 35 percent this year and will debut 10-year domestic debt.


“We’ve not gone back on our decision to issue more medium-and long-term bonds this year,” Finance Minister Seth Terkper said by phone from Davos yesterday. “When revenues start coming, the dynamics will change.”