In re-profiling the country’s debt, government has increased the average term to maturity of its debt securities in issue, as the share of the debt portfolio falling due within one year has been reduced to 29.2 percent as at September 2018, from 54.5 percent in 2016.
This has been revealed the 2019 annual borrowing and recovery plan issued by the ministry of finance.
This development has been mainly due to the policy of re-profiling maturing domestic debt with key focus on refinancing maturing short term treasury bills with tenors of 91 or 182 days with longer-term bonds of between two and 15 years’ tenor.
The average cost of domestic debt had also been reduced to 16.4 percent by September 2018, after it had dropped to 17.4 percent as at the end of 2017 from 20 percent in 2016. However interest rates on domestic debt have been rising again since mid-2018, after declining from late 2016 in response to efforts by government to make cedi denominated securities more internationally competitive.
As at the end of September 2018, that the average maturity of domestic debt portfolio had been extended to 7.8 years, after it had extended to 7.2 years at the end of 2017 from 5.5 years in 2016.
As part of the debt reprofiling strategy, government issued for the first time in Ghana, its longest termed cedi denominated bonds of 15 years in 2017 with callable options, which gives government the option to redeem the bond prior to its maturity. This means government could buy back those bonds if interest rates fall significantly, enabling it to replace them with new bonds issued at lower rates.
The yield curve has also been extended from 7 years to 15 years and bonds with maturities of between 3 years to 15 years, comprising about 64 percent and 62 percent of the total debt stock in 2017 and 2018, respectively, compared to just 36 percent in 2016.
Medium-Term Debt Management Strategy
In presenting the 2019 budget on the floor of Parliament last year, the Finance Minister, Ken Ofori-Atta indicated that, the 2019 debt strategy will continue to build on the strategy implemented in 2018.
The strategy is expected to focus on an appropriate financing mix aimed at supporting fiscal consolidation without compromising macroeconomic stability.
The strategy envisages the issuance of medium-term domestic instruments to help address cost associated with the financial sector clean-up. With zero central bank financing of the budget still in force, the strategy further seeks to maintain a cash buffer beyond the net domestic financing to cater for liquidity and liability management.
By Joshua W. Amlanu
