Government would have to brace itself to take tougher decisions in retiring some of its maturing debt as it failed to raise 500 million cedis through the domestic bonds market last week.
Government, in an attempt to raise the fund to restructure its debt and maturity settlement only secured 303 million cedis after it agreed to pay a fixed yield of 24.5 percent.
Explaining the factors that may have influenced the low confidence in the bond, Economist, Professor Godfred Bokpin said that investors are closely watching inflationary pressures and expect it to go up in the run-up to the election, hence will not invest in a fixed rate market.
“If you look at where the policy rate is, and the signals that it sends to the market, it may also suggest that probably investors are of the view that inflationary pressures may head up in the run-up to the election,” he said.
He stated that investors do not only observe one market but monitor other markets to move their investments for optimum returns.
According to him, a critical look at the inflationary trend is already sending a hint to investors that spending may go up pushing inflation up before the election.
He explained that with bonds, high inflation always reduces the net profit on investments; hence investors are apprehensive when the signals indicate that the figures may go up in the near future.
Touching on some of the difficulties that may be faced in clearing government’s maturing debt, Professor Bopkin recalled that the latest IMF-World Bank joint debt sustainability analysis points out a worrying development where maturing debt for this year may go beyond 1.3 billion cedis.
“We have to be prepared to roll over. Probably that is what will happen. Over the years that is what we have been doing. Currently, we are spending 14 billion cedis to service our debts. It’s not the best but that is what we have been doing,” he said.
Describing Ghana’s debt sustainability strategy as worrying, Professor Bokpin stated that there are no provisions in the budget to retire the country’s debt, but there is a provision to service it which is not the best.
