To address the forex risk associated with domestic bond redemptions by offshore investors, the government plans to undertake bond exchanges and buyback auctions in close coordination with the Bank of Ghana.
This, according to the Finance Ministry’s 2021–2024 Medium-Term Debt Management Strategy, will smoothen both the redemption profile and any associated forex risk from the repatriation of offshore flows.
The country’s stock of domestic debt stood at GH¢149.83bn (US$26.2 billion) at end-December 2020, representing 39.1 percent of GDP and an increase of 42 percent from the 2019 position. Of this, the share held by offshore investors stood at 18.5 percent, equivalent to GH¢27.69bn.
It is important for the government to manage exposure to offshore investors given the risk of sudden exits based on changing local or global economic conditions, as well as the effects on the foreign exchange market of financial repatriations by these investors.
The bond exchanges and buyback auctions will ensure that government is able to manage roll-over and refinancing risk by consolidating the large number of outstanding securities into fewer and more liquid lines, the Finance Ministry said.
It added that the cost of diminishing this roll-over risk will be the sum of premiums charged by investors to sell back or switch their holdings.
“Government will implement a liability management and debt re-profiling programme, which has so far contributed to improving the debt mix and lowered domestic interest payments, to help manage the risks embedded in the debt portfolio,” the Ministry stated.
“The benchmark policy to re-open existing bonds to create large-size benchmarks to increase market liquidity and facilitate more efficient market making will continue to be implemented,” it added.
Since 2013, the government has used the buyback strategy to manage the redemption of its outstanding Eurobonds, enabling it to control roll-over and refinancing risks associated with its sovereign liabilities.