Fix yield curve, restore discipline before bond market return – Dr. Atuahene urges

By Joshua Worlasi AMLANU and Ebenezer Chike Adjei Njoku

Government must address its inverted yield curve, restore debt sustainability and implement far-reaching fiscal and revenue reforms before re-entering the domestic bond market, according to a new policy paper authored by Dr. Richmond Atuahene – a banking consultant and financial sector expert.

The 95-page analysis, titled ‘Sovereign Governments Borrow Not Only from International Investors but Also from Domestic Residents’, warns that without significant structural corrections, government efforts to re-issue domestic bonds in 2025 risk exacerbating market dysfunction, undermining investor confidence and worsening the country’s debt trajectory.

“The inverted yield curve is a critical red flag,” Dr. Atuahene writes. “With Treasury bills yielding an average of 18  percent and long-term bond coupon rates below 9.1 percent, market pricing does not support a return to long-dated issuances. This distortion must be corrected as a precondition for credible market re-entry.”

An inverted yield curve – where short-term interest rates exceed long-term ones – is often seen as a predictor of economic contraction. In Ghana’s case, it reflects heightened investor risk aversion, especially in the 2022 Domestic Debt Exchange Programme’s (DDEP) aftermath – which resulted in substantial impairment losses for financial institutions and pension funds.

Government has managed to push the yield on the market down by over a 1000 basis points. As of April 22, the 182-day bill had dipped to 16.18 percent while the 364-day bill fell by 3bps to 18.62 percent and the 91-day bill is at 15.45 percent.

The central bank’s monetary policy committee in its the march 2025 meetings raised its policy rate by 100 basis points (bps) to 28 percent, citing persistent inflationary pressures.

Dr. Atuahene recommends a comprehensive policy response that includes macroeconomic stabilisation, transparent fiscal management and active steps to align debt issuance with investor expectations.

“Government must work to restore debt sustainability by meeting key IMF targets, including a reduction in the present value of public debt-to-GDP to 55 percent and the external debt service-to-revenue ratio to 18 percent by 2028,” he writes. “Premature issuance of new domestic bonds before these thresholds are met would be fiscally irresponsible.”

The paper, which draws on data from the IMF, Ministry of Finance and international debt assessments, outlines eight policy recommendations. Chief among them is need to reverse the yield curve through improved inflation control, strengthened debt management practices and a balanced maturity structure in bond issuances.

“Without addressing this yield inversion, any new bond issuance would likely trade at steep discounts or fail to attract adequate participation,” Dr. Atuahene notes.

He also calls for the urgent development of a credible fiscal framework, warning that Ghana’s history of weak budget discipline has undermined previous reform efforts.

“The lack of fiscal anchors – such as a debt cap or medium-term expenditure rules – has contributed to recurrent slippages. A well-designed fiscal framework is essential to anchor expectations and guide public sector borrowing,” the report states.

On revenue mobilisation, Dr. Atuahene advocates aggressive reforms to close the widening gap between Ghana’s tax-to-GDP ratio and that of its sub-Saharan African peers.

He proposes the introduction of high-net-worth individual taxes, expansion of property taxation and a review of mining sector incentives that have eroded the tax base.

“If Ghana had matched the SSA average of 27 percent revenue-to-GDP, it could have avoided many of the expenditure overruns and borrowed less,” he argues. “The current 16.7 percent revenue ratio is unsustainable and must be urgently addressed.”

The report also emphasises the importance of tackling corruption and improving public financial management. It recommends strengthening the Office of the Special Prosecutor, establishing a fiscal crimes tribunal and ensuring stricter enforcement of procurement and tax laws.

“Corruption, tax evasion and illicit flows cost Ghana billions annually. These leakages not only undermine domestic revenue efforts but also erode public trust and investor confidence,” Dr. Atuahene warns.

Another recommendation is for government to prioritise concessional financing from multilateral institutions over non-concessional domestic and external debt. Given the GH¢150.3billion in domestic debt service obligations due over the next four years – mostly in 2027 and 2028 – any new debt must be aligned with a robust refinancing strategy.

“Concessional borrowing provides breathing room,” he notes. “Government must avoid relying solely on short-term instruments to bridge long-term fiscal gaps.”

In concluding, Dr. Atuahene cautions that rushing back into the domestic bond market could replicate the same policy errors that led to the 2022 default.

“Investor trust was badly damaged. Rebuilding that trust requires more than policy statements – it demands demonstrable fiscal restraint, revenue transparency and a long-term commitment to macroeconomic stability,” he writes.

The paper has sparked renewed debate within policy circles, especially as Ghana navigates its IMF-supported recovery programme. While government officials have expressed optimism about declining T-bill rates and investor participation, Dr. Atuahene’s analysis offers a sobering reminder that structural challenges remain unresolved.

“Without addressing the underlying causes of Ghana’s debt crisis, re-entry into the bond market may not only be ill-timed – it could be catastrophic,” he concludes.

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