Cedi Rallies On Debt Exchange Announcement
Early signs show that the currency and debt markets are responding well to the details of the Ghana Domestic Debt Exchange Programme.
For example, after the program was announced, the cedi rose against the US dollar by a fair amount.
A note from the research arm of Rand Merchant Bank (RMB) shows that the local unit gained more than 4 percent against the dollar by the end of the first trading period after the announcement. At the end of that period, the cedi was worth GH13.5 per US$1, and both the spot and forward markets were better.
RMB pointed out that the fact that the cedi was the “standout performer” was especially impressive because most currencies on the continent did not do as well as the US unit.
“The way the currency market moved suggests that investors liked the news about the debt exchange over the weekend. The Ghanaian cedi was the best performer on the African currency market yesterday. It gained more than 4% against the US dollar and ended the day at 13.5. Other African currencies did not do as well.
This is a small but welcome change for the cedi, which has been the worst-performing currency in the world this year after losing more than 55% of its value against the dollar. This has added GH93.86 billion to the public debt stock, bringing it up to GH467.37 billion at the end of September.
The DEP was made so that the government could get a US$3 billion program from the International Monetary Fund. This was done because the government’s unsustainable debt is eating up more than 60% of its income (IMF).
The fiscal authority expects holders of local debt to exchange about GH137 worth of domestic notes and bonds by December 19, 2022, in exchange for new instruments with maturity dates of 2027, 2029, 2032, and 2037 and coupon payments of 0% in 2023, 5% in 2024, and 10% from 2025 until maturity.
Market watchers are paying close attention to what is happening, and they are also waiting to see how the government handles its foreign debt.
Even though it’s still early, RMB Africa Research thinks that if the DEP is implemented well, investors will want to buy Ghanaian assets in the middle term.
“Even though Ghana’s fiscal pressures are still high, investors are starting to buy Ghanaian assets again because they are cheap and there are signs that the country could return to a stable fiscal position in the middle term,” RMB said.
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