Goldman Touts Ghana Bond Selloff as Warning to Debt-Ridden EMs

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By Selcuk Gokoluk

Risk premium on Ghana sovereign bonds above 800 basis points

Many emerging markets saw debt levels jump during pandemic

(Bloomberg) —

A rout in Ghana’s sovereign bonds signals that investors are becoming concerned about burgeoning debt in junk-rated developing nations, according to Goldman Sachs Group Inc.

The average extra premium sought on dollar securities sold by Ghana’s government has widened by 162 basis points since the beginning of September to 853, edging toward the 1,000 level that is generally classed as distressed. The West African nation’s sovereign debt has soared to 81.5% of gross domestic product this year, from 35.6% in 2012.

Ghana is not the only emerging economy that’s added piles of debt over the past decade thanks to abundant and cheap global liquidity, while the Covid pandemic added to nations’ borrowing needs. Investors are starting to ask how developing countries will cope with $587 billion in hard-currency debt coming due next year, just as interest rates start to rise.

Ghana exemplifies a shift in the way the market has focused on risks from Covid-19, Goldman Sachs analysts including Sara Grut, wrote in a note on Nov. 1. As the pandemic shut down economies globally in 2020, many of the countries with the highest debt levels saw bond yields move into distressed territory.

“However, Ghana mostly stands out for its fiscal risks, with the International Monetary Fund projecting that it will have one of the widest fiscal deficits of any EM high-yielder next year,” the Goldman analysts wrote.

The average budget deficit in emerging economies in 2020 was 7.6% of GDP, projected to narrow to 4.7% this year. That’s still twice the average for 2014, according to data compiled by Bloomberg. 

Losses on Ghana’s sovereign bonds in 2021 have exceeded 10%, the fifth-worst performance in developing nations, according to a Bloomberg index tracking emerging market dollar debt.

Rising Yields

Gradual normalization of interest rates will make debt issuance pricier for emerging economies. The average yield on dollar-denominated EM sovereign and corporate debt has already climbed 83 basis points this year to levels last seen in July 2020.

“We do expect government bond yields to increase in most of EM countries on the back of higher Treasury yields in the coming months,” said Marek Drimal, a strategist at Societe Generale SA. “Many EM countries have been able to run higher deficits and debt ratios recently because the pandemic often resulted in local quantitative easing programs, but exit strategies are important.”

Ghana Bonds Punished With Traders Fretting Over Debt Levels

To be sure, a surge in economic growth may help alleviate some of the concern over absolute debt levels. Emerging economies are likely to post average economic growth of 6.4% this year, the highest since at least 2014, and 5.1% next year, according to estimates on Bloomberg.

Still, investors shouldn’t lose sight of debt levels — picking sovereigns with stronger fiscal balances will continue to pay off as they outperform those with weaker metrics, the Goldman analysts wrote.

To contact the reporter on this story:
Selcuk Gokoluk in London at

To contact the editors responsible for this story:
Bruce Douglas at
Robert Brand, Alex Nicholson

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People Marek Drimal (Societe Generale SA)
Sara Grut (Goldman Sachs International)
Simon Quijano-Evans (Gemcorp Capital LLP)

Topics Business News (BUSINESS)
BFW Credit Emerging Markets (BFWCREDEM)
Emerging Mkts News, Analysis (BFWEM)
First Word FX

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