After two years of sluggish growth from 2014 to 2016, real GDP growth recovered to 8.5% in 2017 and was estimated to be 6.2% in 2018, driven mainly by the oil sector. The fiscal account deficit improved marginally, from 5.9% in 2017 to an estimated 5.7% in 2018, as did the current account deficit, from 4.5% in 2017 to an estimated 4.4% in 2018. Inflation declined to the single digits, at 9.8%, and average lending interest rates declined by 4.71 percentage points to 16.23% in September 2018. The Ghanaian cedi stabilized against major currencies, except for a slight depreciation against the US dollar in the second quarter of 2018. In September 2018, Ghana rebased its GDP from 2006 to 2013. The rebased 2017 GDP is 24.6% greater than the previous 2017 GDP. Private consumption increased by 6.2% of GDP in 2018. The economy is projected to grow by 7.3% in 2019 and a slower 5.4% in 2020 as the effects of increased oil production from new wells fade.
Tailwinds and headwinds
Despite the positive outlook, Ghana faces potential domestic and global headwinds. On the domestic front, the government faces a challenge in bridging its financing needs, with domestic revenues at about 10% of GDP and gross financing needs of more than 20% of GDP. This challenge is compounded by a high external debt–to-GDP ratio, which declined from 40.5% of GDP in 2017 to 38.5% in 2018. On the external front, dependence on primary commodity exports continues to expose the economy to international commodity price shocks, which could weaken GDP growth and the current account balance. Domestic private consumption is also projected to slow down, to 4.9% of GDP in 2019 and to 3.5% in 2020. The potential weakness in oil prices could lower exports receipts and hence revenues. Continued strengthening of external demand for oil and cocoa will support medium-term growth. But years of growth based on the extractive industry have not addressed widening inequality and the creation of decent jobs. Agriculture remains the main employer of labor. Low productivity in agriculture has triggered a large movement of labor from the sector into mostly informal services in urban areas. This phenomenon explains the country’s high employment rate but low-quality jobs. Ghana is undertaking proactive measures to increase productivity through a phase approach to industrialization, as defined in the country’s 10-point industrialization agenda.
Ghana is gradually building industrial capacity, and growth in industry is projected at 9.8% in 2019 and 5.9% in 2020. Recent trends reflect more machinery in the country’s import basket. Between 2000 and 2017, the total value of machinery imports increased fourfold, to $670 million. This rapid increase in machinery imports had a substantial adverse effect on the country’s current account balance, but it reflects a gradual shift toward industrialization. While total machinery imports have increased over time, the government’s capital expenditure has been on the decline since 2016. This implies greater private participation in industrialization, which is consistent with the government’s private sector–led agenda for economic transformation.
Under high debt and low public and private savings, the government’s main recourse for financing its economic transformation agenda is foreign direct investment. Such financing would require increased focus on sustaining achievements in macroeconomic stability and the business environment. Complementing these gains with enhanced domestic revenue mobilization would expedite the path to debt sustainability and increase fiscal space for further government capital and social spending.
- 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.