Ghana and Kenya are likely to return to the Eurobond market in first quarter of 2021 but see a widening of their risk premiums over 2021 as investors incorporate a higher likelihood of frontier-market issuers being pushed into debt restructuring.
It is likely that spreads on Ghana’s eurobonds over those of Kenya will increase over 2021 as concerns rise over its weak fiscal position and high reliance on commercial overseas financing.
- Ghana and Kenya are both among the sub-Saharan African sovereigns with the highest amount of outstanding eurobonds, USD 10.3bn and USD6.1bn, respectively.
- Both countries are likely to post double-digit fiscal deficits this year, as contracting economies add to already faltering government revenue.
- With interest costs absorbing close to 50% of government revenue, Ghana will struggle to find sufficient cost- savings in other areas to reduce the fiscal deficit substantially in 2021.
- In contrast to Kenya, Ghana has already cut back its capital expenditure to a bare minimum. The Bank of Ghana stepped up its purchases of government bonds sharply in September and we expect this to continue during 2021.
- In Kenya, part of the solution should be to encourage county governments to raise more revenue, but this will be challenging to implement before the August 2022 elections.
- Having shied away from bi- and multilateral creditors in favor of commercial borrowing, Ghana is likely to struggle to secure sufficient external financing in 2021. This makes increased central bank financing likely and poses downside risks to the cedi.
- Neither Ghana nor Kenya is likely to seek DSSI participation in 1H21 even if they deem that international bond issuance will not be possible.
- We have changed our view and now expect both Ghana and Kenya to issue Eurobonds in 1H21.
- Kenya is likely to continue to draw on funding from the IMF, the World Bank and other multilateral creditors as well as bilateral financial support from China as the Standard Gauge Railway continues to bleed funds.
- The spreads between Ghana and Kenya eurobonds are likely to widen further as a higher risk of a debt restructuring is priced into Ghanaian assets.