Economic performance and prospects: Economic growth fell from 14% in 2011 at the onset of oil production to 3.5% in 2016, the lowest in two decades. The economy recovered in 2017, growing an estimated 6.3%, spurred by recovery in nonoil sectors, lower inflation, and new hydrocarbon wells (the Tweneboa, Enyenra, Ntomme, and Sankofa oil and gas fields). Over the medium term, economic growth is expected to accelerate to 8.5% in 2018 and then moderate at 6.2% in 2019 as the budget and current account deficits narrow amid lower inflation and falling interest rates.
Macroeconomic evolution: Weak economic growth squeezed by tight monetary policy and lower oil production in 2016 have led to a decline in government revenues. Budget performance is expected to improve after the budget deficit drop from 8.9% of GDP in 2016 to 4.7% in 2017. Higher oil production and tightly controlled expenditures are likely to boost revenues. Improvements in tax collection and falling inflation and interest rates will facilitate economic activity. Revenue mobilization and efficiency measures will continue to be key factors in budget implementation. Inflation continued to gradually drop from a peak of 19.2% in January 2016 to 12.2% in September 2017. The Bank of Ghana reduced its policy rate from 25.5% to 21%, the fourth consecutive cut since November 2016. Exchange rates remained stable compared with 2014 and 2015, with a cumulative yearly depreciation of 4.7% against the U.S. dollar as of August 2017. Ghana is at a high risk of debt distress as the debt-to-GDP ratio remains high at 73.3% in December 2016, down from 68% in June 2017. Debt sustainability remains a priority for the government’s fiscal consolidation program.
Tailwinds: The smooth transfer of political administration following the December 2016 elections strengthened Ghana’s democratic credentials. The promotion of private sector– led growth provides a key platform for reviving the nonoil sectors, as well as for links to stimulate manufacturing. Restoring and maintaining a sustainable fiscal and macroeconomic environment, improving the business-enabling environment while strengthening the electricity supply, and ensuring the energy sector’s financial viability are requisite to enhanced productivity. The resolution of the production challenges of the Jubilee oil well and the September 2017 landmark ruling of the 2015 International Tribunal for the Law of the Sea on the boundary dispute between Côte d’Ivoire and Ghana in favor of Ghana pave the way for renewed drilling and exploration of oil and gas and offer the potential for new oil investment.
Headwinds: The wide budget overrun in 2016 calls for expanding Ghana’s tax base, which is relatively low, with a tax-to-GDP ratio of about 16%. Revenue mobilization remains key in achieving the country’s plans for a sustainable fiscal consolidation path while managing debt sustainability and funding of development objectives. Addressing the financial sustainability of state-owned energy enterprises is crucial to the financial health of the energy sector, as well as the banking sector, whose nonperforming loans rose sharply to 21.2% in June 2017. The increased minimum capital requirement of commercial and rural and community banks paves the way to consolidate and improve the health of the banking sector. The Bank of Ghana has taken steps to restore stability to the sector by requesting a recapitalization plan from banks with capital shortfalls, in addition to the implementation of collateral requirements and the development of an Emergency Liquidity Assistance plan.
- Ghana does not have a benchmark yield curve, but the Bank of Ghana and the Ministry of Finance construct a yield curve using yields from primary markets for internal purposes. The auction yields are published on official sites. There is no daily setting of reference yields by the debt management office.
- The government securities yield curve extended to 7 years with six potential benchmark points along the curve (3-6 months, 1-2-3 and 5 years).
- The strategic target is to keep Treasury bonds at 70% of domestic debt against 30% for Treasury bills.
- Ghana is 9th in the ABMDI 2017 Ranking Report.
Ghana’s Medium-Term Debt Strategy (MTDS) 2012-2014 has set a number of objectives, including the following:
- Domestic market to serve as potential alternative sources of funding.
- Improve market liquidity and therefore cover credit premium.
- Adopt a financing strategy that will minimize the portfolio risk.
- Streamline issuance (calendar).
The strategy envisages lengthening the domestic maturity profile to 7 years. Short-term domestic debt constitutes 59.4% of total borrowing.
There are 6 potential benchmark maturities: 3-month, 6-month, 1, 2, 3 and 5 years. Currently only 3-month and 6-month tenor function as real benchmarks, for the others either the issue size is too small or issuance is very infrequent.
Ghana does not have a benchmark yield curve, but the Bank of Ghana and the Ministry of Finance construct a yield curve using yields from primary markets for internal purposes. With the lack of a secondary market and sporadic yield quotation on Reuters or Bloomberg, the latest auction yields are considered as a benchmark yield curve. No zero-coupon curve is regularly calculated.
Linear interpolation is used.
Yield curve managed by
The Bank of Ghana and the Ministry of Finance calculate the yield curve on a weekly basis.
Challenges in building an efficient yield curve
- Market fragmentation: the market is segmented: non-residents can only purchase 7-year and longer bonds, while domestic investors are keen only on 6-month tenor.
- Narrow investor base: the domestic institutional investor base is thin albeit growing.
- Illiquid and limited secondary market: most investors buy and hold securities.
- Lack of transparency in pricing securities in the secondary market: quotations from Reuters and Bloomberg are sporadic. However a new electronic trading platform will start soon.
- Lack of effective benchmarks: there is no benchmark issue in terms of size.
Guide to Buying Bonds
Procedures for market participation
Every Friday, the Bank of Ghana conducts an auction of T-bills on behalf of the Government and the public sector for their borrowing needs as well as for monetary policy purposes. T-Bond auctions are conducted occasionally. The auction is processed electronically using either the cut off rate or the amount government is borrowing. Following the set criteria the system automatically allots the winning bids and the cost of these bids, which become available online to participants. The announcement of the next issue as well as the amounts and instruments issued are disclosed in the publication of the results of the previous issue. Only primary dealers may participate in auctions.
On the secondary market, government bonds with a maturity of less than 2 years are traded over the counter through the primary dealers. In 2006, the 2 year and 3 year maturity bonds were quoted on the Ghana Stock Exchange (GSE). The 5-year maturity bonds were authorized for listing on the GSE in 2007.
The GSE opens on weekdays from 9:30am to 3pm. The trading system used is an electronic platform, the GSE Automated Trading System (GATS). Orders are processed on the GATS as well as from the floor, with brokers or even over a secured Internet link.
An investor cannot intervene directly in the stock market to buy government securities; they must use a broker. For foreign investors, there are 18 brokers following established procedures to cater to foreign investors. Barclays Bank of Ghana Ltd and Stanbic Bank of Ghana Ltd provide foreign investors with access to the secondary market.
On the primary market, when the allotment process is complete, each successful participant is advised of the amount to be paid to the Government on settlement day. The settlement cycle for government securities auctions therefore occurs on the basis of T+1. On the settlement date, the fund accounts of the participants are debited by their respective amounts and the securities accounts of individual investors are credited with the allotted securities. Auctions for Government Securities are held on Friday (T) and subsequently settled on Monday.
In the secondary market, DvP process is in place in Ghana for Government Securities Settlement. Securities are settled trade for trade and credited or debited directly to the account of the investor whereas funds are settled by a single transfer into the account of the participant at the Bank of Ghana. Settlement is done at the end of the settlement day. The settlement cycle for government securities market is currently T+0.
There is a withholding tax of 8% (which is also the final tax on dividend income) for all investors, residents and non-residents. Since 2010, capital gains on listed securities are exempt from tax.
|Rating Agency||Current rating||Outlook|
|Standard and Poor’s||B+||Stable|
Initially, brokerage firms, banks and discount houses were the main distributors. The participation of retail banks seemed essential given their extensive networks to promote the retail government securities.
However, in March 1996, in consultation with the distributors on the market, the Bank of Ghana stopped the retail market for Treasury bills. Instead they focused on the establishment of the wholesale auction with the help of Primary dealers. The primary market could be stimulated and expanded thanks to increased competition on a more efficient and dynamic secondary market.
Openness to international investors
Attracting foreign investment is a big challenge for the Government of Ghana. The Government passed laws to encourage foreign investment and replaced regulations perceived as unfriendly to investors. The Foreign Exchange Act 2006 (Act 723) has allowed non-resident investors to invest in the Ghanaian capital markets.
There is no limit on capital transfers as long as the transferee can identify the source of capital.
Restrictions on FX and profit repatriation
Ghana operates a free-floating exchange rate regime. Ghana's local currency, the Ghana cedi, can be exchanged for Dollars and major European currencies. The Foreign Exchange Act 2006 (Act 723) has allowed non-resident investors to invest in the Ghanaian capital markets without limits or exchange controls.
Non-resident investors can repatriate their original investment plus all gains and revenues without restriction.