Investors reassured of strong economy amid Eurobond selloff

Investors reassured of strong economy amid Eurobond selloff

Minister of State at the Finance Ministry, Charles Adu Boahen, has reassured investors – especially non-resident investors – of strong macroeconomic fundamentals amid the recent global sell-off of Eurobonds on the international market on the back of the US Fed taper announcement, of which Ghana’s bonds have suffered more noticeably.

Similarly, the cost of government financing on the secondary bond market has been on the rise since the third quarter of 2021; with yields rising more broadly across the yield curve as the US Fed begins its scheduled taper timeline.

Speaking at the Graphic Business/Stanbic breakfast meeting with a focus on direction of the 2022 budget, the Minister of State said: “There has been a general global sell-off of Eurobonds, but in terms of Ghana it has been quite pronounced. It is a situation that is of quite a concern, but I want to assure the audience (investors) that nothing has fundamentally changed”.

He added: “We are still on track to meet our fiscal deficit; we are still on track to meet our revenue of the year. We believe that the market reaction is not based on the fundamentals which are essentially the same as they were three to four years ago”.

Per the October report of the Institute of International Finance (IIF) on capital flows in frontier economies, total portfolio flows to 10 countries in sub-Saharan Africa, which includes Ghana, will weaken to US$8.3billion as sovereign Eurobond issuance is set to decline; and tightening global liquidity conditions will likely reduce foreign investor appetite for local frontier market debt.

Mr. Boahen further stated that the upcoming budget will be a boost to investor confidence following the recent sell-off. “We believe that in this upcoming budget we will be able to reassure investors about the credibility of what we are trying to do as a country,” the minister said.

“There has also been some capital flight as investors have moved funds back to the US, as yields in the west have become more attractive on the back of Quantitative Easing (QE) and a lot of spending which has pushed rates up and inflation up – making rates there compared to rates here more attractive,” he stated.

2022 Budget

The minister highlighted that 2022 will continue to focus on addressing some key areas; such as high debt levels and interest rates, as well as expenditure rationalisation and optimising the implementation of flagship and strategic programmes, and widening revenue sources.

“We continue to have high debt levels and challenges with regard to interest rates that have had an impact on the private sector’s ability to borrow at an attractive rate to fund investment for expanding the economy. The 2022 budget is focused on expenditure rationalisation and optimising implementation of flagship and strategic programmes; and widening and deepening revenue sources, including the expanding the tax net,” he said.

“Debt sustainability and fiscal consolidation is a big priority for us. We want to make sure that we continue to focus on putting our debt on a declining path as we move forward, in order for us to achieve a 60 percent to 65 percent debt to gross domestic product (GDP) target,” the minister emphasised.

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