Ghana may have no option than to return to the International Monetary Fund (IMF) for financial support if its debt continues to rise.

The debt, which is presently a little above ¢335 billion, continues to surge and create problems for the economy.

According to a Bloomberg survey, the country may have to pay a higher premium if it returns to the international capital market next year to issue a Eurobond.

Ghana’s credit-risk premium soared to the highest since the start of the Covid-19 pandemic ahead of next month’s budget.

“Do they still have access to the Eurobond market at these levels? Could they issue one at a reasonable price?,” said Neville Mandimika, an Economist and Fixed Income Strategist at FirstRand Bank in Johannesburg.  

“The answer seems to be no.”

Ghana has historically relied on funding from the Eurobond market to fund expenditure.

But limited access to international loans could force the government to supply more debt locally, which would be detrimental to cedi yields as banks and institutions already own about 80% of the financial instrument.

Ghana’s dollar bonds are the worst performers this month in a Bloomberg index tracking emerging-market hard-currency debt, with a decline of 5.8%. The 2025 yield jumped 153 basis points on Monday, 18th October, 2021, the most in a day on record since the debt began to trade in April 2021.

It climbed a ninth consecutive day on 20th October, 2021 by 4.0 basis points to 11.28%, the highest on record.

“At this point they need to present a credible plan B on how they fund the budget in the absence of Eurobond issuance,” said Mr. Mandimika.

“In a worst-case scenario where debt is growing amid a global risk-off mood, Ghana may have to head back to the IMF.”

The Governor of the Bank of Ghana, Dr. Ernest Addison, speaking at the Ghana Economic Forum called for a fiscal policy in next year’s budget that will create a more credible path towards fiscal or financial sustainability.

According to him, this is important for the country’s quest to accelerate its economy rapidly but financially sound.

“The 2022 budget should be used to reset fiscal policy to create a more credible path towards medium term fiscal sustainability. This would be an important building block to establish and entrench credibility, a key component to stability”.

Premium investors have demanded to hold the country’s debt rather than US Treasuries, which has climbed 144 basis points in October 1st, 2021 to 910 basis points on Tuesday, 19th October, 2021, the highest since May 2020.

Revenue fell short of target by 12% to ¢34.3bn

The country’s revenue fell short of target by 12% to ¢34.3 billion ($5.66 billion) in the first seven months of the year and may continue to do so, putting pressure on its economic growth outlook.

Economists from Redd Intelligence, Renaissance Capital and Capital Economics who spoke to Bloomberg are already forecasting annual expansion to stay well below the target of 5% in 2021.

Slower-than-anticipated growth will also make it harder for Ghana to fund its budget deficit, which is expected to return within the legislated threshold of 5% of Gross Domestic Product by 2024, after breaching it last year.

The analysts have also expressed worry about the widening credit spreads that raise questions about the country’s debt trajectory.