Bond market performance hinges on reducing inflation
THE poor performance of Ghana’s bond market in 2023 has been attributed to high inflation and economic challenges.
Professor Elikplimi Komla Agbloyor, the Chair of the Research Committee at Tesah Capital emphasizes that the recovery of the bond market depends on economic improvement, particularly in reducing inflation.
The Ghana Stock Exchange (GSE) reported last year that the bond market, under the Ghana Fixed Income Market recorded a 57.26% decrease in volume of bonds traded at GH¢98.44 billion at the close of 2023 against GH¢230.32 billion in 2022.
The total number of trades for the year declined by 24.36%, from 528,188 trades in 2022 to 399,522 trades in 2023.
Prof Agbloyor traced the low activity on the bond market to fiscal dominance, saying that “ fiscal dominance has constrained the economy so in terms of solutions, what we need to do is to find a way to get back on track.”
He advised government to find ways of increasing revenues, reduce expenditures, but “prioritise the expenditure that is critical at this moment for facilitating growth and putting the economy back on recovery track.”
Prof Agbloyor however cautioned government to be wary of the implementation of tax measures in order not to fuel inflationary pressures or unduly burden the consumer.
“We need to increase revenue but we need to think carefully about how we increase revenue because for example, the VAT on electricity has received a lot of backlash because it doesn’t make sense at this time given the stress that Ghanaians are going through,” Prof Agbloyor cautioned.
He stressed that reducing inflation to acceptable levels is crucial for fostering more activity in Ghana’s capital market.
“We need to get inflation under control because for fixed income investors if inflation is very high your real return actually becomes negative. If we are able to bring back inflation to the Central Bank’s target of between 6 to 10% that will be good news for the bond market,” Prof Agbloyor stated.
Highlighting the importance of fiscal discipline, Prof Agbloyor warned that the ongoing recovery efforts by the managers of the economy could be jeopardized if reckless expenditure, especially during election years, continues.
He emphasized that sustaining gains requires strict fiscal discipline.
