Ghana reopens debt exchange for GH₵12.9bn of local bonds

Ghana is making headlines once again as it reopens a debt exchange invitation that was initially settled in February for an additional 12.9 billion cedis of local bonds. This decision aligns with the conditions set by the International Monetary Fund (IMF) for the bailout that was agreed upon in May. Courage Boti, an Economist from GCB Capital, shed light on the implications of this move and provided insights into the latest inflation data and the potential strategies the Bank of Ghana might implement to combat inflation. During the CNBC Africa interview, Boti mentioned that the reopening of the debt exchange is aimed at boosting liquidity in the market and encouraging more bondholders to participate. The shift towards the new bonds is expected to increase trading activities and enhance price discovery, given the higher volumes and benchmark sizes associated with the new offerings. While the terms of the exchange remain largely the same, with participants receiving similar conditions as the initial round, there is a focus on prioritizing interest payments for the new bonds over the old ones. This prioritization could incentivize more individuals and institutions to exchange their bonds, especially considering that those who did not participate in the previous exchange missed out on coupon payments. Overall, the reintroduction of the debt exchange is geared towards fostering liquidity and market activity. Looking ahead, Boti expressed concerns regarding future debt management strategies, particularly with a substantial amount of bonds maturing in 2027 and 2028. He emphasized the importance of having mechanisms in place, such as buybacks and sinking fund strategies, to address these maturing bonds effectively. Failure to manage these impending maturities could lead to challenges in raising finances and potentially necessitate another round of debt exchange. These long-term debt management issues underscore the need for proactive planning and strategic interventions. Shifting the focus to inflation figures, Boti shared his analysis of the recent data, which showed a notable decline in inflation from 43.1% to 40%. He attributed this decrease to the harvest season, which contributed to lower food inflation alongside a decline in non-food inflation. Despite minor increases in fuel prices and utility tariffs, the overall trend points towards further disinflation, especially with the anticipated impact of the harvest season in September. Boti projected that inflation could potentially reach 37-38% in September and continue to decline in subsequent months, thanks to favourable base effects. However, he cautioned that factors such as fuel price adjustments, tariff hikes, and seasonal demand pressures during the upcoming festive period could moderate the pace of inflation decline. In terms of policy responses, Boti suggested that the monetary authorities might maintain the current policy rate of 30% throughout the year, considering the expected trajectory of inflation. He anticipated a potential policy adjustment in the first quarter of the following year, contingent on the inflation outlook and economic conditions. Overall, the outlook for Ghana's economy amidst the debt exchange reopening and inflation dynamics indicates a delicate balance between short-term stability and long-term sustainability. The government and financial regulators will need to navigate these challenges effectively to ensure robust economic growth and financial stability.