Ghana Debt Moves Deeper Into Distress as Investors Lose Patience

https://www.bloomberg.com/news/articles/2022-01-13/ghana-debt-moves-deeper-into-distress-as-investors-lose-patience

As the era of cheap money draws to an end, bondholders are no longer prepared to cut Ghana any slack.

The West African nation’s dollar bonds have slumped 10% in 10 days, moving deeper into distressed territory as investors judge that re-financing debt in the Eurobond market won’t be an option when the Federal Reserve hikes rates and budget targets remain elusive.

The extra premium demanded on Ghana’s sovereign dollar debt jumped on Wednesday to an average 1,105 basis points, from 683 basis points in September. Its $27 billion of foreign debt had the worst start to the year among emerging markets, extending last year’s 14% loss, according to a Bloomberg index.

Investors are questioning whether Ghana – the region’s second-biggest economy – can sustain its debt levels if a surge in borrowing costs shuts it out of international markets. Government debt climbed to 81.5% of gross domestic product at the end of last year, from 31.4% a decade ago, according to data compiled by Bloomberg.

That places Ghana among the most vulnerable credits to tighter U.S. monetary policy, despite economic growth.

Welcome to the Club

This month’s selloff places Ghana firmly in EM’s distressed debt nations

“The market has woken up to the fact that this is a country with a lot of outstanding bonds,” said Kevin Daly, investment director at Aberdeen Standard Investments in London. “A lot of people went into last year with overweight positions and a lot of them have started to throw in the towel.”

The West African nation’s $750 million bonds due in March 2027 fell 10 cents this month to 79.4 cents on the dollar on Thursday, sending the yield to nearly 14%. Of 14 Ghanaian dollar bonds, 13 are trading with an extra premium of at least 1,000 basis points, a level considered distressed, a Bloomberg index tracking sovereign debt showed.

“I don’t expect them to default in 2022, as they have enough foreign-exchange reserves, but medium to longer term, it becomes an issue as Ghana has lost access to the Eurobond market for rolling over debt,” said Joe Delvaux, a portfolio manager at Amundi in London. “They have too much debt for the size of the economy and investors have lost conviction in the government’s willingness to consolidate spending and take necessary measures.”

The government’s failure to pass a new levy on electronic money transfers through parliament in November also made investors doubt whether it has the political capital to pass revenue-raising measures in parliament or reign in spending to reduce borrowing needs.

The opposition to the tax reform and plans to end a subsidy on pharmaceutical and vehicle imports will make it hard for the government to meet this year’s budget deficit target of 7.4%, down from 12.1% last year.

I wont pretend like I fully understand the whole bonds stuff, but it seems like ghana’s debt may not be sustainable, and investors are losing faith in our economy. these are my biggest takeaways:

Investors are questioning whether Ghana – the region’s second-biggest economy – can sustain its debt levels if a surge in borrowing costs shuts it out of international markets. Government debt climbed to 81.5% of gross domestic product at the end of last year, from 31.4% a decade ago, according to data compiled by Bloomberg.

“They have too much debt for the size of the economy and investors have lost conviction in the government’s willingness to consolidate spending and take necessary measures.”

The government’s failure to pass a new levy on electronic money transfers through parliament in November also made investors doubt whether it has the political capital to pass revenue-raising measures in parliament or reign in spending to reduce borrowing needs.

The opposition to the tax reform and plans to end a subsidy on pharmaceutical and vehicle imports will make it hard for the government to meet this year’s budget deficit target of 7.4%, down from 12.1% last year.

Bonds are technically monies borrowed from stakeholders that have been turned to securities to be traded, the prices of these bonds go up if interest rates come down and vice versa, then at the maturity date, the entity that borrowed the money pays back the principal + interest.

So in essence this article is saying Ghana has borrowed too much money that we can’t pay back (principal amount + profit) and we have no ideas of generating revenue to pay back bringing down the value of our bonds. In other words, we’re in deep sh*t. In a desperate effort to generate revenue, the Ghana government wanted to tax mobile money, now I hear they doubled import duties.

This is all happening because the government is mishandling the monies they borrow and can’t use the money for anything that will bring profits. They borrow monies, embezzle it, then find ways for citizens to pay back the monies they borrowed and spent. This is serious.

I wanted to laugh, but this is not a laughing matter at all!

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thank you for the explanation! Also WOW. i really hate this government. this is depressing. i really have to wonder what the next few years will be like…its going to be a mess.

Not just this government. This and all previous government do the same thing, they get in, rape the country and steal as much as they can, then after their term of office, they have immunity against the law, so you can’t sue them or take the money back, it’s all in the constitution, Rawlings started it, and because it suits them (the politicians), no one wants to change the constitution, this will go on FOREVER, until the immunity is removed or the whole constitution is scraped and rewritten.

Imagine someone told you, you can steal anything you want and won’t face any consequences… what would you do? You would go to Accra Mall and pick whatever you like right? That’s what’s happening in your government.

Ghanaians even don’t understand the intricacies of what’s going on to even fight, we really don’t know what’s going on in the government so they do what they want.

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