Ghana’s belt-tightening measures to reach its budget-deficit target are fueling the longest bond rally in two months.
The yield on the nation’s $1 billion bonds maturing in 2026 declined for the sixth consecutive day as President Nana Akufo-Addo reiterated the government’s commitment to get the economy back on track.
The rate on the 2026 debt eased 67 basis points to 14.19%, a five-week low, by 1 p.m. in the capital, Accra.
“The road to recovery will be long and hard but we have started on a good footing by accepting we are in a difficult place and are taking the difficult decisions that will get us out,” Akufo-Addo said in a televised state-of-the-nation address Wednesday.
The address came a day after lawmakers approved a tax on electronic payments, a key piece of legislation needed by the government to grow revenue and narrow the fiscal deficit this year. The passage of the e-levy builds on other steps the West African country has taken in response to a selloff of its foreign-currency debt triggered by investor concern about the credibility of its fiscal targets.
These include a decision to cut government spending by 30% to meet a budget-deficit goal of 7.4% of gross domestic product this year from an estimated 12.1% in 2021.
“As opposed to the planned cut in spending, the e-levy is a concrete step that is now set in stone and should help stabilize bond yields and the exchange rate,” Simon Quijano-Evans, a London-based economist at Gemcorp Capital, said in an email response to questions.
The bill passed despite a walkout by minority lawmakers, which occupy about half the seats in parliament, putting the government’s legislative agenda at risk. Ghana, which plans to manufacture vaccines against the coronavirus in January 2024, was still reeling from the economic fallout of the pandemic when the Russian invasion of Ukraine “aggravated” the situation, Akufo-Addo said.
“There are many problems that we have to overcome to get back to where we ought to be,” he said in parliament. “I need your support.”