Ghana Passes Key Tax Law Needed for Budget Target; Bonds Rally

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Ghanaian lawmakers approved a tax on electronic payments, a key piece of legislation needed by the government to reduce its budget deficit this year. The West African nation’s dollar bonds rallied.

The so-called e-levy, first proposed by Finance Minister Ken Ofori-Atta in November, was passed after he cut it to 1.5% from 1.75%. Minority legislators who had opposed the tax staged a walkout while it was being debated in parliament Tuesday in the capital, Accra.

The passage of the levy builds on other steps Ofori-Atta has taken in response to a selloff of Ghana’s foreign-currency debt triggered by investor concern about the credibility of the nation’s fiscal targets. The minister last week announced he would deepen spending cuts to ensure the government meets a budget-deficit target of 7.4% of gross domestic product this year from a projected 12.1% last year.

The yield on Ghana’s dollar bonds maturing in 2026 extended their decline after Tuesday’s vote, with the rate down 55 basis points at 14.90% by 2:44 p.m. in Accra. Prior to its revision, the e-levy was projected to boost revenue to 15.4% of GDP by the end of 2022 from a forecast 12% last year. 

“We could see a little more on the relief rally after this passage,” Kevin Daly, a London-based investment director at Aberdeen Standard Investments said in emailed response to questions. “The recent bond rally may reflect some of the measures the government put in place recently but Ghana risk premiums are also benefiting from the broader risk rally on the back of better headlines on the Russia-Ukraine conflict.”

The minority in parliament, which occupies about half the seats in the chamber, had argued that the new levy would affect ordinary Ghanaians, leading to a standoff that showed how a divided parliament may complicate Akufo-Addo’s legislative agenda.

Read: Ghana Deepens Spending Cuts to Achieve Budget-Deficit Target

The value of mobile-money transactions in Ghana fell for a second consecutive month in January, declining 13% to 76.2 billion cedis ($10.1 billion), after the government said it planned to impose the tax. Mobile money is the fastest-growing source of income for wireless-network operators like Johannesburg-based MTN Group Ltd.

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