Ghana planning to issue Africa’s first social bonds, here’s what that means

Ghana is planning to issue green and social bonds of up to $2 million, making it the first African country to sell debt to fund development programs, Bloomberg reports. The money from the sale of the social bonds will be used to refinance debt used for environmental and social projects as well as education or health.

The social bond instrument has seen a boom since the peak of the coronavirus pandemic. Only a few countries have sold them so far, including Chile and Ecuador. According to Bloomberg, Ghana will use the proceeds to continue with the free Senior High School initiative started in 2017 among others despite its sluggish economy.

Ghana’s parliament has given the finance minister Ken Ofori-Atta the nod to borrow up to $5 million in the international market this year. As of March this year, the country has also sold $3.03 billion, according to Bloomberg.

“The expectation is that the bonds will be issued in the fall and the maximum can be $2 billion,” Ofori-Atta told Bloomberg. “Our actual new debt will be $1.5 billion.”

A social bond is a debt instrument that is used to finance social projects particularly in the area of education, health, environment, and food security. It has become popular in recent years because investors see it as a viable instrument to half inequalities.

In 2020, social bonds reached a record high after growing by sevenfold and it is expected to grow by some 6 percent this year. The African Development Bank (ADB), which first launched a social bond in 2017, has so far issued five such bonds. It recently issued a $3 billion debt instrument to fight COVID-19.

Despite the active participation of the ADB in the social bond space, African countries have been less active. They turn to go for bonds to fund big infrastructure projects and funding debts or repaying huge interest loans.

Many more African countries may follow Ghana’s example due to “the pandemic’s devastating impact on tax revenues, and the need to fund critical social sectors,” Churchill Ogutu, head of research at Genghis Capital in Nairobi, Kenya, told Quartz in May.

Ghana is the world’s leading producer of gold and the second-biggest producer of cocoa. In recent years, the country’s economy has seen a significant boost as a result of oil and gas production.

When COVID-19 struck, the nation’s economy fell into recession for the first time in 40 years. However, the latest data posted by the Ghana Statistical Service says the economy expanded by 3.1 percent in the first three months of this year compared to seven percent in the same period last year.

According to the data, the growth was driven by the non-oil sector.