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3 August 2022

The CIO Memo : The Music Appears To Have Stopped Globally, And Ghana Is Scrambling For A Chair

In brief

  • External events spiked risk aversion and shone a spotlight on Ghana’s economic and fiscal policy credibility. In fact, most African Frontier Countries and Emerging Markets faced the same level of investor scrutiny.


  • But Ghana’s fragile domestic environment and large foreign exposure triggered a quick and brutal exit of foreign capital.


  • The loss of access to both the external market (1Q2022) and the domestic market (2Q2022) nudged Ghana towards the IMF.


  • However, the IMF bailout will not avert an imminent debt restructuring, despite offering policy certainty and direction.


  • Given the current market conditions, Ghana’s expensive local currency bonds look particularly vulnerable to either debt restructuring or funding of repayment through the central bank. The latter option poses a severe currency risk to investors.


  • Converse to its local counterparts, we do not believe a default on Ghana Eurobonds is imminent as the country will have the USD 750.0m loan (hopefully) from the African Export-Import Bank, USD 1.3bn cocoa syndicated loan, and the windfall from its petroleum revenue. These inflows should shore up Ghana’s foreign exchange reserves before an IMF bailout within the next 6-8 months.


  • The music appears to have been switched off globally. And Ghana—like many other countries with persistent fiscal pressure—is scrambling for a chair. We have taken the intermission to look at our options from every angle, and believe that while we wait for the next tune, investors with limited options should take shelter in holding long-term local currency bonds, short-term Ghana Eurobonds, and US Dollars. In maintaining this active market stance, we continue to believe that tomorrow’s winners belong to those who prepare for recovery.


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