Government is considering issuing a Eurobond in 2018 to raise $1 billion as outlined in its medium term debt management strategy document for the next two years.
Reasons for Eurobond sale
According to government sources, the planned Eurobond sale is part of several options being considered to help finance the budget deficit which government has revised to 6.3 percent of GDP and ¢13.2 billion on cash basis.
JOYBUSINESS understands details of the Eurobond sale could be announced in the 2018 budget which would be presented to Parliament in November this year.
If government goes ahead with this auction, it could be this administration’s first with Eurobond sale and possibly the 6th by the country.
Concerns with the Eurobond sale
The country paid about 9.25 percent as interest on its last Eurobond issued to raise some $750 million.
There are fears that studying current developments on the international market and the decision by US Federal Reserve to hike rates, the country could be paying more if it finally goes ahead to issue this bond.
However, analysts like Mike Cobblah who is also the country director for investment firm C_Nergy Ghana does not think that the country is not in a good position to issue the bond.
He tells JOYBUSINESS the current economic fundamentals have witnessed some improvement could reduce the cost that could come with this Eurobond issue.
Government’s debt management strategy
According to the debt management strategy document, government envisaged an increase in non-resident investor participation in the domestic bond market.
The strategy is to assume a three year zero coupon bond this year and some $1 billion investments in a 10 and 15-year bond and continuous issuance of some medium term bonds like three, five and seven-year bonds.
All these issuances would be guided by borrowing at the very low cost and as well as develop the domestic bond market.
The document outlines strategies aimed at reducing the public debt in relation to the total value of the economy to 70 percent from 73 last year.
The document also added that government would be looking at using the book building approach to encourage investor participation in longer dated instruments
Interest rate risk benchmark
Government in the document noted that it does not see an eminent risk for the debt portfolio saying, “over the medium term, that share of floating rate debt in the total external debt is expected to be within the range of 20-25 percent”.