The Ghanaian government’s proposed return to the domestic bond market in 2025 has sparked controversy, with financial experts expressing concerns about the timing and potential consequences. Dr. Seyram Kawor, a senior finance lecturer at the University of Cape Coast Business School, argues that re-entering the market so soon after the Domestic Debt Exchange Programme (DDEP) could be detrimental to the country’s economic recovery. The DDEP, implemented in response to unsustainable debt levels, soaring inflation, and a depreciating currency, involved restructuring existing bonds, effectively imposing haircuts on investors. While the program achieved over 80% participation and prevented an economic collapse, it also significantly disrupted the domestic capital market. Dr. Kawor believes that investor confidence remains fragile and that the government should prioritize rebuilding trust before seeking new financing.
The government’s motivation for returning to the bond market stems from fiscal constraints and limited access to international capital markets. The country has been largely shut out from these avenues, forcing reliance on short-term borrowing at high interest rates. While acknowledging the fiscal challenges, Dr. Kawor maintains that the potential risks outweigh the benefits of an early return to the domestic bond market. He emphasizes the need to assess investor sentiment, which remains uncertain following the DDEP. Investors need time to regain confidence in the market and assess the government’s commitment to fiscal responsibility. Prematurely issuing new bonds could exacerbate the debt situation, leading to higher interest payments and further narrowing the already limited fiscal space.
Dr. Kawor advocates for a more cautious approach, suggesting that the government should focus on strengthening its financial position before tapping the domestic bond market. He recommends prioritizing the accumulation of reserves in the sinking fund, a mechanism designed to ensure the timely repayment of future debt obligations under the DDEP. Building up reserves demonstrates the government’s commitment to meeting its commitments and can help reassure investors. Furthermore, he emphasizes the importance of maintaining fiscal discipline and improving revenue mobilization through enhanced tax compliance. These measures will signal a commitment to responsible fiscal management and improve investor confidence, paving the way for a more successful return to the market.
Instead of rushing back to the domestic bond market, Dr. Kawor proposes a two-year waiting period, allowing sufficient time to rebuild trust and demonstrate fiscal prudence. During this period, the government should develop a comprehensive debt management plan, outlining its borrowing needs and intended use of funds. This transparency will provide investors with the necessary information to assess the risks and potential returns associated with new bond issuances. A clear strategy, accompanied by demonstrated commitment to fiscal responsibility, will attract investors and contribute to more favorable borrowing terms.
A well-defined debt management plan should specify the purpose of borrowing, the projected timeline for repayment, and the mechanisms for ensuring timely coupon payments. This transparency will allow investors to make informed decisions and mitigate concerns about the government’s ability to meet its obligations. By demonstrating a commitment to fiscal responsibility and transparency, the government can gradually restore investor confidence and create a more conducive environment for future bond issuances.
Dr. Kawor warns that a hasty return to the market could be counterproductive, further eroding investor confidence and exacerbating the debt burden. Higher interest payments on new bonds would strain the already limited fiscal space, potentially jeopardizing the country’s economic recovery. A more prudent approach, focused on rebuilding trust and demonstrating fiscal discipline, is essential for achieving sustainable economic growth and restoring stability to the domestic capital market. A measured, strategic return to the bond market, supported by a clear debt management plan and demonstrable fiscal responsibility, will ultimately be more beneficial for Ghana’s long-term economic health.
