The World Bank’s lending unit is holding off on plans to sell 2 billion cedis ($996 million) of local-currency bonds in Ghana, where Treasury-bill yields are among the highest in Africa.
“With rates in the 23 percent range, it would be very difficult,” J.R. Rao, Washington-based principal treasury officer at the International Finance Corp., said by phone this month. He reiterated the comments yesterday in an e-mail. “Even if you issue close to the government level, you’re going to pose challenges to the investment of the proceeds.”
Ghana’s 91-day yields rose five basis points at the last auction on June 14 to 23.1 percent, the highest in four months and the second-highest in Africa after Malawi, according to data compiled by Bloomberg. The IFC first announced plans to sell local debt in January 2012.
Inflation surged for a fourth month to 10.9 percent in May, remaining above the central bank’s target at a more than three-year high, the Ghana Statistical Service said on June 12. Ghana’s Finance Ministry is trying to narrow a budget deficit that reached 12.1 percent of gross domestic product last year amid spending before December elections and state payrolls that topped forecasts. The ministry targets a 9 percent shortfall this year.
“The budget deficit has been more than expected,” Rao said. Credit ratings agency Moody’s said in a note on June 10 the shortfall will remain elevated at 10 percent because of wages and the effect of interest payments.
The IFC issues local-currency bonds to support the development of capital markets and to raise money for private-sector development. It was in the advanced stages of filing a prospectus in Ghana and the offer was approved by local regulators, Rao said. The organization is now monitoring market indicators before going forward with the offer, he said, declining to give a time frame.
The IFC, which invested in Ghana’s HFC Bank Ltd. last month and helped raise funds for the development of the country’s first oil-exporting field, sold debt in Nigeria in February. It raised 12 billion naira ($75 million), increasing the amount from the 8 billion naira offered after receiving orders worth 20 billion naira.
Ghana’s inflation may accelerate after the government removed subsidies on gasoline, gas oil and liquefied petroleum gas on June 1, Grace Akrofi, head of research at Bank of Ghana said. The central bank is standing ready to increase its key lending rate and mop up liquidity to curb price gains, she said.
After keeping the key rate unchanged at 15 percent since June 2012, the central bank on May 22 increased it to 16 percent, citing risks to inflation from higher fuel costs, fiscal spending and exchange-rate fluctuations. Its target for inflation by the end of the year is 9 percent. The cedi strengthened less than 0.1 percent to 2.0061 per dollar as of 10:01 a.m. in Accra, paring its drop this year to 5.1 percent.
When IFC sells the cedi bonds, the durations will depend on what Ghanaian companies that will get the proceeds need, said Andrew Cross, manager of IFC Treasury Client Solutions for Africa. The terms will likely be five to 10 years, he said. The longest-term government debt offering is five years.
“A lot of it is subject to our clients needs,” Cross said. “We’re thinking of extending the yield curve that exists in Ghana already.”