Macro Analysis /

Ghana's Eurobonds trading at a massive risk premium relative to African peers

  • Forex: Volatility in the Ghanaian Cedi spikes

  • Fixed Income: Ghanaian bonds trading at a massive premium relative to African peers

  • Macroeconomic: Economic conditions in Sub Saharan Africa seen improving in February 

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
4 February 2022
Published byETM Analytics


A more hawkish tilt by both the ECB and the BoE have placed the USD on the defensive. It is now trading at weaker levels than ahead of last week's FOMC decision and will soon be testing its recent lows in mid-Jan. Not even the retreat in equity markets was enough to put the brakes on the USD's slide. This will go a long way to promoting higher risk currencies as well as commodity prices more broadly.

While US firms have struggled with hiring and labour shortages in recent months, the emergence of the Omicron variant seemed to add to the pressure in the US economy as 199k jobs were added according to December's NFP print, a poor showing compared to the 450k expected. However, this temporary impact didn't concern too many FOMC members as a drop in the unemployment rate, and wage growth signalled a continued recovery towards full employment in the wake of the COVID-19 pandemic.

The January reading could incur another drop in hiring, as the impact of the Omicron variant is captured. Nevertheless, it is unlikely to sway hiring momentum, while the Fed's recent policy statement noted substantial job gains and a satisfactorily tight labour market. With a swift rebound from Omicron, the Fed should stick to its recent policy guidance and begin hiking rates starting in March. The pace of monetary tightening after that will ultimately depend on inflation and the economy's resilience.


Egypt: In line with expectations, the Central Bank of Egypt decided to leave its deposit rate and lending rate unchanged at 8.25% and 9.25%, respectively. Policymakers said they expected much of the economy to expand in the near term and inflation to remain in check. Moreover, the central bank said that over the near-term, domestic economic activity is expected to be mainly driven by domestic demand and, in specific, gross domestic investments. Looking ahead, with headline inflation expected to remain within the bank’s target, the CBE said that keeping policy unchanged remains consistent with achieving that target and keeping price stability over the medium term.

Kenya: Kenya's Treasury is set to inject $176mn into struggling Kenya airways. According to the airline's Chairman, the funding, detailed in supplementary budget documents submitted to parliament, is "dependent on certain restructuring milestones". The capital injection emerged alongside a report that Kenya Airways has selected financial advisers to help evaluate options to restructure its debt load, which totalled KES 92.5bn at the end of 2020. The government had been planning to nationalise the airline, already 48.9% state-owned, before abandoning the plan last month. Note the airline is battling to survive after years of loss and a mounting debt pile.

Nigeria: As part of a recovery plan to boost output that has fallen by more than a quarter in two years, Nigeria is preparing a crackdown on oil theft. According to the Nigerian Upstream Petroleum Regulatory Commission CEO, Nigeria loses as much as 150,000 barrels of oil a day to criminals who illegally tap pipelines. At current prices, the missing barrels are worth about $4bn a year. While stopping short of providing details, the CEO noted that the government has approved measures aimed at containing the illegal activity, and the "security strategy" would be revealed soon. Note that Nigerian production fell last year to fewer than 1.5mn barrels a day of crude equivalent in December from about 1.7mn barrels in January. That's lower than the quota set by OPEC+ for Nigeria. Despite rising oil prices, government revenue from oil through November was about half the amount anticipated. At the same time, oil majors such as Shell and Exxon Mobil are looking to sell their remaining onshore and shallow water assets in order to focus on deep-water projects, leaving the industry reliant on local producers.

Nigeria: Citing delays by the Export-Import Bank of China, Nigeria has approached Standard Chartered for funding of two railway projects. Transport Minister Rotimi Amaechi said that the Nigerian government would not wait any longer since China had not responded to the loan requests. The Nigerian government received from the state-owned lender only about 15% of the funding required for a line originally estimated to cost $8.3bn that will link the commercial hub of Lagos to the northern city of Kano. China Eximbank's hesitancy is the latest setback to President Buhari's plan to link all major regions of the country with railway lines by the time he leaves office next year. According to Moody's, Nigeria needs to spend at least $3trn over 30 years on key national assets like roads, ports, pipelines, and powerplants to close a huge infrastructure gap.

Precious metals: Gold has remained anchored above the $1800.00/oz level entering the final day of trade for the week with all eyes on the US jobs data later today. The metal is set for a weekly gain with a weaker dollar and tensions surrounding Ukraine underpinning the bullish tone. Analysts and economists alike are warning of a severe impact to global financial markets should Russia invade as it will force the hand of the United States ringing in a period of massive instability.

Tunisia: Yesterday, policymakers at the central bank opted to keep the key interest rate unchanged amid concerns of an uptick in inflation and urged authorities to agree on economic reforms that will be vital in securing the International Monetary Fund's assistance. Tunisia's central bank has held the key rate at 6.25% for more than a year, and the decision comes as officials target reaching a pact with the IMF in April. That deal would help restore confidence in an economy whose woes were amplified after President Kais Saied in July dismissed parliament in a move critics dubbed a coup.

Forex: Volatility in the Ghanaian Cedi spikes

The week so far has been one for Ghanian Cedi bears. For context, the GHS yesterday closed at a fresh low, according to Bloomberg data going back to 1994. Moreover, the Cedi is on course for its third straight weekly loss. Yesterday's drop added to the Cedi's year-to-date losses of -2.06%, making it the fourth-worst performing African currency against the dollar in Bloomberg's basket of 23 currencies. The Cedi has only fared better than the Mauritian Rupee (-4.10%), the Liberian dollar (-4.40%) and Zambian Kwacha (-9.02%) in 2022. Much of the weakness in the Cedi this week has been attributable to increased dollar demand. Most importers established letters of credit to purchase goods at Christmas and are now looking for dollars to pay, while holders of hard currency were not willing to sell to the market as they wanted to invest in the domestic dollar bond. The country's 5-year 2026 domestic dollar bond was reopened yesterday.

Pulling back the lens, a broader bearish bias has been evident on the Cedi, with the currency in January recording its eighth monthly loss out of the past nine. Increased dollar demand, in addition to the exit of the country's bonds by some foreign investors amid Ghana's worrying fiscal outlook, has put the Cedi under notable selling pressure in recent months. Unsurprisingly the Cedi has been the most volatile when looking at the 1-month historical volatility of currencies in the West/North Africa region tracked by ETM.

While inflow from cashew exports expected this quarter and a healthy reserve position might help ease the pressure on the GHS, we are of the view that persisting fiscal concerns, especially as financial conditions continue to tighten, could remain a notable downside risk to the currency's resilience in the near-term.

Fixed Income: Ghanaian bonds trading at a massive premium relative to African peers

While Ghanaian Eurobonds have managed to stage a modest rebound in recent weeks, partly due to some encouraging comments from the Finance Minister and an improvement in external conditions after the Federal Reserve shifted its rhetoric slightly, it is worth pointing out that Ghanaian Eurobonds are trading at a massive premium relative to its African peers. This is reflective of the significant deterioration in Ghana’s fiscal outlook in recent months.

With the exception of Zambia, which defaulted on a sovereign debt repayment at the end of 2020, Ghanaian Eurobond yields across the curve are trading well above the comparable South African, Nigerian, Egyptian, Angolan and Kenyan Eurobond yields. The variance in fiscal premiums between Ghana and its African peers is particularly pronounced when looking at the Eurobond market, which in Ghana’s case has been hit particularly hard by mounting concerns over the country’s fiscal outlook.

Not only have investors become fearful that the Ghanaian government may no longer be able to refinance its maturing debt in the Eurobond market given the shift in global monetary policy, which is pushing up the cost of borrowing in the international bond market, but investors are also concerned over the government’s commitment to reining in its ballooning debt pile. Data published by the Central Bank of Ghana showed that Ghana’s public debt continues to rise with no clear end in sight.

Macroeconomic: Economic conditions in Sub Saharan Africa seen improving in February  

The latest bout of regional PMI data showed that Omicron weighed on regional growth in the first month of 2021 as a number of social distancing measures remained in place in January to curb the spread of the new fast-spreading variant. Specifically, the Sub Saharan Africa average PMI score fell from 52.1 in December to 51.4 in January. While the gauge edged lower last month, it is encouraging to note that it remains buoyed above the 50.0 point mark, pointing to an expansion in economic activity.

A breakdown of the data showed that the headline PMI scores in two of the six countries covered increased, namely Uganda (51.5 in Dec to 54.9 in Jan) and South Africa (48.4 in Dec to 50.9 in Jan). On the flip side of the coin, private-sector economic conditions in Kenya (53.7 in Dec to 47.6 in Jan), Nigeria (56.4 in Dec to 53.7 in Jan), Ghana (51.8 in Dec to 50.8 in Jan) and Zambia (51.5 in Dec to 49.9 in Jan) deteriorated last month.

While economic growth in the region slowed last month, we expect an improvement in economic conditions in February following the lifting of social distancing measures against the backdrop of a sustained rally in international commodity prices. That said, there are still a number of downside risks to the regional inflation outlook, including persistent supply chain challenges, soaring prices and the emergence of new strains of the coronavirus. Although we expect economic conditions to improve this month, growth is expected to moderate in 2022, slowing from 4.0% in 2021 to 3.7%. This is notably lower than the world average of 4.4%.