The withdrawal of foreign funds and impairment of Ghana’s access to the Eurobond market will add to the already-heavy domestic borrowing requirement in the fourth quarter of this year, the latest REDD Intelligence report on the country, has said.

According to the international research firm, Ghana saw a record drop in non-resident holding of domestic debt in September which was connected to a two-year domestic bond which matured on 27 September this year.

“Upcoming maturities of two-year bonds of GHS 2.0bn (USD 0.3 billion) and USD 2.4 billion (USD 0.4 billion) on 8 November and 6 December, respectively, could see a further reduction in non-resident holding of domestic debt, and weigh on Ghana’s foreign reserves if funds are repatriated,” the report on Ghana said.

The report is titled “Ghana: Eurobond sell-off puts 2022 financing at risk.”

That, REED, said would add to the government’s current funding squeeze with the government most likely locked out from financing on the international bond market for the time being due to surging yields in October.

The report said, the government might consider applying for a debt restructuring under the G20 Common Framework, if the country fails to access the international capital market in the first-half of 2022.

This is as a result of rising interest rate on its international bonds.

REDD said the country faced severe financing challenges ahead of the presentation of the 2022 budget in mid-November, as a sharp sell-off in its Eurobonds brought doubts over its continued access to international capital markets financing.

“If Ghana remains closed out of the international financial market in half-year 2022 then there is an increased likelihood the government may consider applying for a debt restructuring under the G20 Common Framework. This is somewhat earlier than our previous assumption that such an application could materialise in 2023-24.”

The G20 Common Framework developed together with the Paris Club, beyond the Debt Service Suspension Initiative, provides debt treatments for low income countries facing unstainable debt.

It said the sharp sell-off in Ghana’s Eurobonds during October 2021 had locked the government out of external commercial financing for what could be an extended period.

This it said, made the government even more reliant on domestic borrowing than expected in the fourth quarter of 2021 and going into 2022.

“The increased skepticism over the government’s ability to finance itself is likely to result in a continued repatriation of non-resident funds from the domestic debt market in 4th quarter of 2021, which will add to the financing squeeze. The government could present some deficit-cutting measures in the 2022, budget but investors are likely to demand more than optimistic revenue forecasts for Ghana’s Eurobond yields to close the gap with peers such as Kenya and Nigeria and fall to levels where new bond issuance would be feasible”, the report, said.

REDD Intelligence had earlier stated that the government would borrow heavily on the domestic market during the second half of the year, even if it had retained access to commercial external financing.

The international research firm said the US$3 billion proceeds raised from the four-tranche Eurobond sale in March 2021 allowed the government to reduce its borrowing on the domestic market during the second quarter of 2021.

REDD, however, said, the failure for the country to return to the market for a green, social and sustainable (GSS) bond issuance by July 2021 as planned saw the government ramp up its domestic borrowing in new debt.