Before I press ahead I would like to apologise for skipping the Ghana FI weekly last week, so this week’s version will recap events over the last two weeks.
The fortnight that was (March 19-30)
PMA rates closed March lower on robust demand: Relative to planned offer of GHS2.2billion, the Government of Ghana (GoG) sold GHS2.5billion worth of debt split as follows: 91-day (26%), 182-day (9%), 1-yr (1%) and 3-yr (64%). The 3-year issue was the standout as relative to planned sale of GHS900million, strong offshore interest, which drove yield tightening, allowed the GoG upsize the issue to GHS1.5billion with primary market auction (PMA) yields declined 175bps to 16.5%. For the T-bills, PMA yields closed the month lower at 13.31% for the 91-day and 13.89% for the 182-day while the 1-yr treasury note closed flat at 15% unchanged for Q1 2018. In the secondary market, yields for longer dated papers remained at discount to issuance levels (of circa 17-19.75%) at the sub 16% levels on account of bullish offshore participation.
As the quarter is over, time for some recap in terms of local issuances, borrowings were slightly higher (GHS11.7billion relative to planned issuance of GHS11.2billion) which implies net debt sale of GHS2.8billion adjusting for maturities. Nevertheless, thanks to the deceleration in inflation rate over the last one year, cumulative MPR cuts of 750bps over the last 15 months and increased foreign appetite for GHS debt, average borrowing rates are down nearly 300bps from Q1 2017.
BoG resumes monetary policy after January’s hiatus: Consistent with market expectations, the Bank of Ghana (BoG) cut interest rates by 200bps (above my 100bps view) to 18% citing a subdued inflation outlook and the usual commentary about the need to bolster sluggish credit growth to support non-oil GDP growth. Interestingly, the BoG made mention of the need to lower Ghana’s fiscal interest burden to aid fiscal consolidation efforts. Ghana’s debt service to revenue ratio from the elevated levels of the last two years. (2017: 41%, 2016: 36%). This new talk about reducing fiscal interest costs hints at more rate cuts in the rest of 2018 as the Nana Akufo-Addo government targets a budget deficit of 4.5% of GDP (2017e: 5.7%). In line with its easing stance, the clearing at its 56-day OMO bill sales declined to 18.3% at the end of March from 19% levels in the week ahead of MPC.
Figure 1: Debt Metrics
Source: BoG statistics bulletin
Parliament approves USD2.5billion external borrowings: The NPP led parliament approved a request by the finance ministry to tap global debt markets for USD2.5billion split between fresh borrowings of USD1billion and USD1.5billion in refinancing. That said, following the rise in US Treasuries and 25bps hike at the March US Federal Reserve FOMC, suggests delayed timing could result in higher yields. Importantly, global debt markets have already experienced a jump in the supply of higher rated SSA Eurobonds which could result in higher issuance yield. That said, plans to tap Asian sources to diversify investor profile with talk of a samurai bond sale (which would be the first such sale in SSA since 2001) could help manage costs.
The Week ahead (April 3-6)
In the week ahead, the GoG plans to sell GHS492million in 91-day and 182-day GoGTBs. In addition, the borrowing calendar is likely to be released which in view of the foreign borrowing plans is likely to point to reduced GHS borrowing over Q2 2018. In view of higher government borrowings offshore, subdued inflation outlook, sustained foreign interest in GHS paper and the BoG’s new quest to help trim the debt service burden, the outlook speaks to considerable downward pressure on the GHS yield curve. Sizable spread and yield compression lie ahead over Q2 2018.
Figure 2: GHS Yield Curve