Government Plans Early Re-entry into Domestic Bond Market Following Debt Exchange Programme

The government is preparing to re-enter the domestic bond market sooner than expected following the completion of its Domestic Debt Exchange Programme (DDEP) in September 2023.

Plans are underway to allow non-resident investors access to the domestic bond market as early as next year, demonstrating confidence in the economic outlook.

This is notably earlier than the typical two- to four-year recovery period that countries usually face after undergoing debt restructuring.

Samuel Arkhurst, Director of the Treasury and Debt Management Division at the Ministry of Finance, discussed these developments during a media engagement at the IMF/World Bank meetings in October 2024. He emphasized that this timeline aligns with Ghana’s fiscal strategy.

“The last time we issued a bond was in September 2022, prior to launching the DDEP in January 2023. We completed the entire process by September 2023,” he noted.

Arkhurst explained that the nearly two-year hiatus from bond issuance to the expected reopening aligns with Ghana’s recovery objectives. While many countries take longer to return to the market post-restructuring, Ghana aims for a quicker re-entry.

The decision to reopen the domestic bond market for non-residents is based on favorable conditions within the fiscal framework.

“When you examine the entire fiscal framework, you’ll see that the restructuring addressed all domestic and external bonds. This resulted in a reliance on Treasury bills, which has been incorporated into the budget deficit and fiscal framework,” he stated. “This aligns with our two-year recovery strategy.”

Inflation, which peaked at 54 percent in 2022, has posed a significant challenge for market access.

However, Arkhurst highlighted improvements in inflation figures, indicating a potential return to normalcy by 2025. Currently, inflation is on a disinflationary trend, reported at 22.1 percent for October 2024.

“If we had issued a bond when inflation was at 54 percent, the real interest rate would have approached 60 percent. With the current economic conditions and anticipated improvements in inflation, we expect a more favorable environment for bond issuance,” he explained.

Arkhurst noted that although non-residents have been restricted from the domestic market, their demand for access remains strong. Current legal frameworks limit non-residents to bonds, as Treasury bills are not available to them. The anticipated opening of the bond market next year aims to capitalize on this demand, potentially unlocking significant foreign capital.

Regarding the Eurobond market, Arkhurst clarified that market access does not equate to immediate issuance. “Access means having favorable conditions and investor appetite, even if you are not issuing bonds right away,” he said.

The government plans to adopt a cautious approach, monitoring investor sentiment and broader economic conditions before making any issuance decisions.

According to Apakan Securities’ third-quarter market review, trading activity in Ghana’s secondary bond market increased in Q3-2024 after a decline in the previous quarter, marking the lowest trading levels since Q4-2022. Total traded bonds amounted to GH¢47.31 billion, reflecting a 53.05 percent quarter-on-quarter increase from Q2-2024 and a 158.07 percent year-on-year surge.

This recovery was fueled by the settlement of coupon payments on all DDEP bonds, contributing to improved market conditions and liquidity.

Medium-tenor bond yields rose by an average of 7.56 percent quarter-on-quarter, settling between 26.35 percent and 28.85 percent by the end of the quarter. Similarly, yields on longer-dated bonds increased by an average of 3.66 percent quarter-on-quarter, trading between 19.85 percent and 30.58 percent, with investor interest particularly focused on the Feb-2027 and Feb-2028 bonds.