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Ghana’s Eurobond yield reflects cost of fiscal imprudence – EIU

EuroThe Economist Intelligence Unit (EIU) has attributed Ghan’s yields from the just-issued $750 million Eurobond to the imprudence in the fiscal management of the country’s economy.

Ghana, on July 25, 2013 launched a $750m Eurobond at a yield well above other recent issues by some other African countries.

According to the EIU’s analysis, although the bond was popular with investors—it was three times oversubscribed—the yield of 8% that encouraged such interest was above that offered by Nigeria, Rwanda and Zambia during the previous 12 months.

The EIU noted that though some of the increase in the Eurobond yield can be put down to the recent upsurge in wariness about emerging-market assets in the wake of hints that the US Federal Reserve could start to scale back its monetary stimulus programme, instead the higher cost of borrowing for Ghana reflects a troubling domestic economic and political profile.

“With fiscal and current‑account deficits both around 12% of GDP last year, doubts have been raised over the quality of policymaking by Ghana’s leaders. Furthermore, the political situation represents an additional risk factor in terms of Ghana’s suitability for investment,” the London-based Unit said.

It adds that the current Supreme Court case over the disputed 2012 presidential election could result in a fresh election. “This would probably delay efforts to bring the fiscal deficit down, and lower prices for gold—a key export—have already reduced the chance of any substantial decline in the current‑account deficit,” the EIU stated.

The EIU highlighted that the main challenge for policymakers will be to ensure that the money borrowed is put to productive uses that will assure the high growth environment is sustained in the longer term.

“Given past precedent, we are not yet convinced that this will happen,” the Unit stated.

By Ekow Quandzie

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4 comments

  1. 100% AGREED SINCE PEOPLE DON’T UNDERSTAND WHY PEOPLE ARE CHASING DESPERATELY FOR HIGH BORROWING OR GOVERNMENT DEBT SALE. WHERE CAN YOU GET 8% IN THIS WORLD WHERE US GOVERNMENT DEBTS IS BEING SOLD NEXT TO LESS THAN 2%

  2. Thanks,I was waiting for such a response, now let those so called loud mouth politicians who do not understand the maths of bounds continue to show their ignorance.

  3. @Frank, its called bonds not bounds…and @Kerry….even if Ghana has budget and trade surpluses, and even no debt, no one will lend to Ghana at the same rate as the United States…you can’t make comment on finance without a full understanding of the dynamics of the market..Whether the 8% is too high is a matter of opinion…The most important issues when it comes to borrowing rate is that the money should be applied to projects who’s rate of return exceeds the cost of borrowing in dollar terms…

  4. @ Richard… It’s “whose rate of return”, not “who’s”