Page 42 - gmj142-Jan-Mar2-mag-web

AFRICA

Spending, not debt, on Ghana

election agenda

by Tom Arnold, Christian Akorlie, Reuters

rowing concerns over Ghana’s rising debt pile in the lead- “We feel the political risk premium and, to some degree,
Gup to presidential elections on December 7 did not stop associated policy uncertainty embedded in current credit spreads
investors buying up the country’s bonds on a bet that the next overstate the risks to Ghana’s ability and willingness to service
government will move to repair the public finances. its debt,” Yvette Babb, emerging markets debt portfolio manager
The two main presidential candidates promised to spend more if at William Blair, which is overweight Ghana in its hard currency
they won the tightly contested vote, while the financial fallout of emerging market debt fund, said.
the coronavirus pandemic has pushed up the debt-to-GDP ratio Ghana’s finance ministry in October revised higher its 2020
past 70% and prompted the International Monetary Fund to flag growth forecast to 1.9% and for 2021 to 5.9%, while trimming its
the danger of debt distress. 2021 fiscal deficit estimate to 8.3%.
The West African nation, a major producer of gold, oil and cocoa, “The fiscal situation is indeed fragile with the deficit reaching 15%
has suffered its first economic contraction in almost four decades of GDP this year, but once the election is out of the way we think
as a result of the pandemic and the lockdown it caused. they can embark on a fiscal consolidation path,” Rodica Glavan,
But investor confidence has been buoyed by hopes that post- senior portfolio manager at Insight Investment, said.
election Ghana will resume the path of economic reforms, gain Along with many other investors, Glavan expects President
fresh IMF support and not follow Zambia into default. Nana Akufo-Addo and his New Patriotic Party (NPP) to win
Warmer sentiment towards global emerging markets in general another four-year term.
after recent vaccine developments have also lifted sentiment. There has been little talk of fiscal consolidation on the election
Ghana’s bonds were the third best performing in emerging campaign trail.
markets in the last week of November, returning 2.5%, according The NPP has pledged a new airport in the central region and
to EPFR and Citi, extending a recovery from March following the a rental support scheme, while the main opposition National
chaos wrought by the pandemic. Democratic Congress (NDC) promises more infrastructure
Franklin Templeton, BlackRock and Aberdeen Standard investment and free laptops for university students.
Investments raised Ghana exposure in their emerging market “The manifestos of the two parties are based on spending
bond funds in recent months, holdings data shows. promises but are small on funding plans or proposals,” said
Leslie Dwight Mensah, economist at the Institute for Fiscal
Studies in Ghana, said.
The impact of the pandemic has strained the Government’s
fiscal position, with 50% of revenues used to service debt, Ankit
Khandelwal, director, Africa coverage at MUFG EMEA, said.
“There is a need to fiscally adjust back to the 5% deficit in the
fiscal rule, a key target in the next few years to reduce significant
gross funding needs, interest rates, costs and stabilise debt
ratios,” Christian Libralato, portfolio manager at BlueBay Asset
Management, said.
A credible fiscal policy would also allow Ghana access to debt
capital markets again in 2021, Libralato said, adding that a funded
IMF programme would boost confidence in debt sustainability.
Ghana received $US1 billion in emergency IMF funding earlier
this year.
“Ghana followed a clear path of reforms, thus placing themselves
on a stronger footing to deal with the COVID-19 onslaught, in
Ghana’s gold sector is vital to addressing the country’s spite of substantial challenges,” Simon Quijano-Evans, chief
debt problems economist of Gemcorp Capital, said.

Page 42