Analysts suggest delaying any major bond issuance until 2026 to avoid reversing recent gains in the country’s debt-to-GDP ratio.
Government, as outlined in the 2025 budget by Finance Minister Dr. Cassiel Ato Baah Forson, plans to reopen the domestic bond market to extend the maturity profile and improve market liquidity.
The finance minister emphasised a cautious approach, noting that government will build sufficient cash buffers to support liability management and mitigate refinancing risks.
However, some market analysts warn that a premature return to the bond market could push interest rates higher and undo progress made through recent debt restructuring efforts.
Dela Agbo, Chief Executive Officer-coCapital Investment Management, bOKelieves issuing bonds in 2025 may be too early, especially as government is still settling outstanding interest payments.
“For me, I think this year is going to be too early for us to start going back to the bond market,” Mr. Agbo said. “We are talking about a new administration that has come to power and there are a lot of payables they need to address. Rushing back without aligning future maturities could push debt-to-GDP back to unsustainable levels.”
Mr. Agbo pointed out that while recent Treasury bill auctions have shown signs of investor interest, government missed its Treasury Bill target for the first time in 2025 – raising concerns about the appetite for new long-term debt.
Treasury bill yields fell again in the last auction as GoG prioritises rate reduction over target. Yields across the T-bill curve broadly continued their downtrend last week, albeit at a weaker pace. The 91-day bill declined by 13bps to 15.74 percent, while the 364-day bill dipped by 12bps to 18.85 percent.
Conversely, the 182-day bill remained unchanged at 16.93 percent. The Treasury remained resolute with its bid rejection strategy, accepting 66 percent of the total bids tendered (GH¢5billion), amounting to GH¢3.32 billion across the 91- to 364-day bills. This resulted in an undersubscription at 19 percent of the week’s target (GH¢6.14billion), marking the first target shortfall in 2025.
Nonetheless, over the past two month there has been a significant reduction in Treasury bill rates. On average, Treasury yields have declined by over 1,000 basis points.
The 91-day Treasury bill rate as of March 17, 2025 has dropped to 15.86 percent from 28.19 percent, representing a reduction of 1,233 basis points.
Similarly, the 182-day Treasury bill rate has fallen from 28.92 percent to 16.93 percent, a decline of 1199 basis points, while the 364-day rate dropped from 30.15 percent to 18.97 percent – a reduction of 1,118 basis points over the same period.
The EcoCapital CEO highlighted the critical need for government to factor-in upcoming debt maturities when considering new bond issuances.
“If we are going to issue new bonds, we need to factor those timelines in. Otherwise, you’ll end up having the same problem again – multiple bonds maturing at the same time,” he said, referencing the 2028–2029 debt ‘cliff’ when a significant portion of restructured debt falls due.
Per the 2025 budget statement, the Domestic Debt Exchange Programme has resulted in huge domestic debt service payments. Over the next four years, the country is expected to pay about GH¢150.3billion representing 11.6 percent of GDP in domestic debt service obligation alone, of which 73.3 percent is due in 2027 (GH¢57.6billion) and 2028 (GH¢52.5billion).
Beyond domestic maturities, Ghana faces significant external debt service obligations over the next four years totalling US$8.7billion and representing 10.9 percent of GDP, with heavy concentration in 2027 and 2028. Again, 55 percent of the total external debt service of US$8.7billion is due to be serviced in 2027 (US$2.5billion) and 2028 (US$2.4billion).
Market observers agree that aligning new issuances with future payment obligations is key to maintaining investor confidence and stabilising borrowing costs.
Mr. Agbo stressed that while investor sentiment is gradually improving, any missteps in managing debt issuance could derail progress.
“If we have brought debt-to-GDP down to about 61 percent and we quickly start loading ourselves again with new debt, we’ll be back in the 80 percent range,” he cautioned. “And once the interest rate is high, the debt profile will grow. Government needs to adopt a cautious approach to avoid creating new pressures that could force another restructuring.”
Government’s decision to reject bids with higher interest rates during recent Treasury bill auctions indicates a strategic effort to control borrowing costs.
This, the EcoCapital CEO believes, signals that government is not yet in a desperate position to raise funds, allowing for a more measured approach to re-entering the market.
“Government clearly has a figure in mind for acceptable interest rates and anything above that is being rejected,” he said. “That suggests they are prioritising sustainability over immediate cash needs, which is a positive sign.”
Despite the cautious outlook, Mr. Agbo acknowledged that by 2026 conditions may be more favourable for government to issue long-term domestic bonds. He also noted that most pension funds would likely be willing to participate in such offerings, provided the terms are attractive.
Mr. Agbo emphasised the importance of building a solid economic foundation before engaging in further large-scale borrowing.
“If we can be patient and do this the right way, it will be very good for investors. Once we clean up inefficiencies, generate enough tax revenue and improve our credit rating, we can borrow more affordably,” he said.
Source: thebftonline.com
