Ghana Bond Yields Rise Most in Four Months as Deficit Widens

  • Country’s spending increases even as oil revenue drops
  • Yields on nation’s Eurobonds at highest since July 8

Yields on Ghana’s bonds surged the most in four months after Finance Minister Seth Terkper said the West Africa nation will increase spending even as a budget deficit is seen widening due to lower revenues from oil.

Yields on Ghana’s $1 billion of Eurobonds due August 2023 rose 35 basis points to 10.06 percent at 2:37 p.m. in the capital, Accra, the most on a closing basis since April 5. The country’s revenue from oil in 2016 will drop to 1.4 billion cedis ($358 million) from a previous estimate of 2 billion cedis, while Ghana will increase spending by 1.9 billion cedis, or 3.8 percent of a previous forecast, Terkper told lawmakers on Monday.

“Since the budget deficit was higher than projected, it may paint a picture that we’re not doing as well as we should,” Nana Kofi Agyeman Gyamfi, a senior analyst at Bora Capital Advisors Ltd. in Accra, said by phone on Tuesday. “It creates jitters among investors.”

Ghana’s budget shortfall for the first five months was seen at 2.5 percent of gross domestic product, compared to a target of 2.2 percent, Terkper said. Debt decreased to 63 percent of gross domestic product on May 31 from 71 percent at the end of last year, he said.

The government of President John Dramani Mahama is battling to meet growth forecasts as lower prices for oil exports and regular power cuts weigh on the economy ahead of elections scheduled for December. Ghana turned to the International Monetary Fund in April last year for a loan of almost $1 billion to help rein in the deficit and arrest declines in the currency.

Power Crisis

Debt owed by utility companies to militants vandalizing oil and gas pipelines in nearby Nigeria worsened the power crisis, Terkper said on Tuesday, slashing the growth forecast to as low as 4.1 percent from an initial estimate of 5.4 percent.

“There are structures in place to clear the debts and so Ghana can get crude and gas to power thermal plants,” he said. “Terrorist activities on pipelines are beyond our control.”

Ghana will sell its fourth Eurobond in as many years in September or October to raise as much as $1 billion to finance dollar debt maturing next year and to boost foreign reserves, Terkper said.

“Although we heard some good news, I’m sure investors wanted more positive news,” Clifford Mpare, chief executive officer of Frontline Capital Advisors Ltd. in Accra, said by phone. “The government maybe needs to spend more to deal with the tough environment.”

(An earlier version of the story was corrected to show the spending increase in second paragraph.)

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