Ghana Claims Best Bond Rally on IMF as Fed Risk Looms

By Matthew Hill and Moses Mozart Dzawu  

Ghanaian and Zambian dollar debt outperformed emerging-market peers in the third quarter as aid talks with the International Monetary Fund spurred pledges of better fiscal management.
Ghanaian securities returned 4.9 percent in the three months through September, the most in an index of 57 developing nations tracked by Bloomberg, which lost 0.7 percent. Zambia was fourth best, earning 3.9 percent. The nations’ bonds also beat most peers during April through June.
IMF talks with Ghana, the world’s second-biggest cocoa grower, will pick up in Washington after starting last week in the West African nation’s capital, Accra. Zambia, Africa’s second-biggest copper producer, is set to meet an
IMF mission next month, Tobias Rasmussen, the lender’s representative in the southern African country, said in an e-mail Sept. 30. Both nations are struggling with widening deficits and sliding currencies after raising wages for state workers.
“The reason Ghana’s and Zambia’s Eurobonds are outperforming these days is because they’re both now on track to get help from the IMF,” Gareth Brickman, Africa analyst at ETM Analytics, said by phone from Johannesburg yesterday. “Both countries have bad fiscal environments.”

Worst Currencies

Yields on African debt reached a seven-week high on Sept. 30, according to a JPMorgan Chase & Co. index. Investors sold emerging-market assets after Federal Reserve policy makers on Sept. 17 raised by 25 basis points their median estimate for where the federal funds rate will be by the end of 2015. The rate has been held near zero since 2008. Ghana’s benchmark was maintained at 19 percent last month, while Zambia kept its rate at 12 percent in August.
“Both would be seen as vulnerable to tighter global financial conditions, because of the weak fiscal positions,” Stuart Culverhouse, chief economist at London-based Exotix Ltd., which trades Ghanaian and Zambian debt, said in an e-mail yesterday. “Other markets could be affected too.”
While Ghana and Zambia are 7,000 kilometers (4,350 miles) apart, their currencies are the continent’s worst performers this year. The kwacha retreated a sixth day to 6.2950 per dollar by 10:56 a.m. in Lusaka, bringing its decline this year to 12 percent. The cedi, down 27 percent in 2014, was little changed at 3.2579 in Accra.
Yields on Ghana’s $1 billion of amortizing notes due January 2026, which it sold last month at a 8.125 percent coupon, fell one basis point to 7.94 percent. Zambia’s April 2024 debt, issued at 8.5 percent earlier this year, slipped two basis points to 6.47 percent.

‘Vulnerable’ Outlook

Zambia plans to slow the increase in spending next year as part of “serious structural reforms,” Finance Minister Alexander Chikwanda said Aug. 26. While he said the country didn’t need an IMF loan, it planned talks about a possible economic program. Chileshe Kandeta, a spokesman for the ministry, declined to comment yesterday.
Ghana will seek to cut spending through a lower wage bill and boost revenue by reducing tax exemptions, Deputy Finance Minister Mona Quartey said at a conference yesterday in Accra.
“The IMF program may help to stop the high deficit cycle but at the moment it would be premature to say the Ghanaian imbalances will be tackled in a strong way,” Culverhouse said.
Zambian bonds may be hurt by uncertainty over the health of 77-year-old President Michael Sata, who missed a speech he was set to give at the United Nations last week. He returned to Lusaka on Sept. 28, two days after his son refuted reports the leader had been hospitalized in New York.
“The economic outlook remains vulnerable to the volatility surrounding the president’s health,” Clare Allenson, London-based analyst with Eurasia Group, said by e-mail on Sept. 29. Prospects are also uncertain because of “copper sector disputes” over tax arrears and power tariffs, she said.
While the countries face similar challenges, any delays in implementing IMF deals may affect them differently, said Nema Ramkhelawan-Bhana, Africa analyst at Rand Merchant Bank in Johannesburg.
“If this deal doesn’t come through for Ghana, we’ll see a steep upturn in yields,” she said by phone on Sept. 29. “In Zambia, the USD returns would probably remain intact until the year-end.”