SOCIAL BOND: Ghana’s New-Found Borrowing Option

Adopted in 2015 by the United Nations, the Sustainable Development Goals (SDGs) also known as the Global Goals, called to action the urgent need to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. However, the outbreak of the SARS-COV-2 pandemic and its containment measures have derailed the progress made on the SDGs and casts doubt on meeting the deadline set for the goals. Estimates from the World Bank show that as many as 150 million could fall into poverty in 2021.

More worrying is the restrictions imposed last year to contain the spread of the virus that impacted greatly on school going children due to closure of schools. The resulting disruptions exacerbated already existing disparities within the education system with the poor and marginalized being the worst affected. This has affected human capital development in most countries; a key ingredient in a nation’s economic development equation. Moreover, Schools closure carry high social and economic costs for people across communities. Estimates from UNESCO show that more than 888 million children worldwide continue to face disruptions in their education due to full and partial school closures.

Nevertheless, the pandemic has awakened the urgent need to tackle the numerous social problems facing the world, which have now been worsened. This, therefore, calls for urgent solutions to bridge the financing gap of about $2.5 trillion to meet the SDGs, according to the IFC. The world, more than ever, needs innovative and sustainable finance in less than a decade to meet these Goals.

Luckily, in the wake of these complex social challenges, Social Bonds have come to the fore of the sustainable bond market. According to the IFC, global social bond issuance in 2020 amounted to $142 billion, up from $17.4 billion issued in 2019. Consequently, investors now see the need to commit their funds into tackling social issues which have been exacerbated by the pandemic.

Just like other countries, Ghana is still battling with the devastating effects of the pandemic and aside the economic fallouts, it has lost 796 lives to COVID-19 as of July 3, 2021. This notwithstanding, the IMF has commended the government for managing the pandemic well, even though it recorded a marginal growth of 0.4% last year. Nonetheless, one major issue that government is battling with is the rising public debt stock. COVID-19-induced expenditures have overstretched government’s finances and compounded it by weak revenue mobilization.

As of End-December 2020, Ghana incurred a revenue shortfall of GH¢11,942.7 million and expenditure increase of GH¢14,074.2 million in relation to their respective targets in the 2020 Budget. The fiscal gap due to the COVID-19 amounted to GH¢16.8 billion in 2020. This, according to the Finance Ministry, was financed by borrowing from the IMF (GH¢5,853 million), AfDB (GH¢405.7 million), EU (GH¢504 million), and BOG COVID-19 Bonds (GH¢10,000 million), among others.

Currently, Ghana’s stock of public debt stands at GH¢304.6 billion at End-March 2021, up from GH¢291.6 billion at End-December 2020. In percentage wise, the current debt accounts for 70.2% of the country’s GDP. Even though the current debt stock is marginally above the sustainability threshold of 70%, the major challenge is that about 49.5% of government’s budget revenues for 2021 will be used to service interests on loans. The situation becomes more worrying when compensation of employees is added to interest payments, this then results to 91.3% of the projected total revenues and grants for 2021.

Why Government Keeps Borrowing?

Clearly, the situation looks gloomy for the economy. Even if the government considers just interest servicing alone, it means that government has only about 50% of its projected revenues including grants to meet the remaining expenditure components which is woefully inadequate. This leaves the government with no option than to look elsewhere to raise the funds to cater for the remaining expenditures that are equally important to the government such as capital expenditures and COVID-19-induced expenditures.

All these developments provide a justification as to why the government has become very active on the capital market in the past few years. To support its budgets, government resorts to the issuance of both domestic and Eurobonds to bridge the budget deficit.

An example was in March 2021, Ghana issued a $3billion Eurobond on the international debt capital market. The bond was massively oversubscribed, as total bids amounted to $6 billion. This made Ghana the first Sub-Saharan African country to issue a Eurobond in U.S. dollars since the outbreak of the COVID-19 pandemic.

Also, on the domestic front, the government of Ghana plans to issue fresh bonds to the tune of GH¢2.1 billion between June and August 2021 to meet its remaining financing requirements. However, majority of the bonds that government plans to issue within the period will be used to rollover maturities.

Comparatively, the current target gross bond issuance of GH¢ 21.96 billion between June and August 2021 is higher than the GH¢21.43 billion issued between April to June 2021.

Why The Need For A Social Bond?

With the current rising debt stock, it has become increasingly difficult for the government to finance some of its flagship programs while at the same time maintaining its support for businesses and households who are still struggling to overcome the challenges inflicted by the pandemic. 

On June 2021, Dr. Yaw Osei-Adutwum, Ghana’s Minister of Education, stated that the government has so far spent GH¢7.7 billion on the Free SHS Policy, which is one of its flagship programmes. Dr. Osei-Adutwum further explained that an amount of GH¢480 million was spent on the Policy in 2017, GH¢1.3 billion in 2018, GH¢1.6 billion in 2019, GH¢2.4 billion in 2020, with plans to spend GH¢1.9 billion in 2021.


To continue to finance these social interventions alongside dealing with the economic turmoil of the pandemic, Ghana needs other innovative ways to raise the needed resources. It is in line with this that, Mr. Charles Adu-Boahen, Minister of State at the Ministry of Finance, in May this year, revealed to Bloomberg that Ghana is planning to raise as much as $1 billion through the sale of sustainable bonds to fund the free SHS policy.

According to Mr. Adu-Boahen, the proceeds will help refinance domestic debt used for social and environmental projects, including loans taken to pay for the government’s free Senior High School (SHS) policy.

With this issue, we’re looking at refinancing those debts already raised to undertake projects in the environmental and social sectors


By this move, Ghana becomes the first Sub-Saharan African country to undertake this innovative initiative. Meanwhile, regardless of the rising appetite for social bonds, it comes as a surprise as no country on the continent has taken advantage of the situation. What remains unclear is why African countries, with numerous social challenges, have not yet embraced the issuance of the social bond.

More worrying, is the fact that the African Development Bank (AfDB) has been an active participant in the social bond market since 2017. After launching its social bond program in 2017, the African Development Bank has so far issued five of such bonds. More recently, the AfDB issued a social debt instrument worth $3 billion to fight COVID-19.

Should Ghana issue this social bond, it will be the first in Sub-Saharan African (SSA). Moreover, financial analysts and Economists have argued that Ghana’s planned social bond issuance could kick start a trend in Africa. “Many more countries in Africa are likely to follow Ghana’s example”, says Churchill Ogutu, Head of Research at Genghis Capital in Nairobi, because of the pandemic’s devastating impact on tax revenues, and the need to fund critical social sectors.

Ghana secures first Social Loan in SSA

Ghana sets the pace in June 2021, after it secured a €280 million Social Loan financing from Standard Chartered Bank to develop a section of the country’s Eastern Corridor road with the aim of transforming the country’s transport infrastructure.

Ghana Eastern Corridor Road
Ghana’s Eastern Corridor road starts from the Tema roundabout and ends at Kalungugu, the North-Eastern border with Burkina Faso. However, Standard Chartered’s financing is expected to fund a particular section of the road, otherwise known as Lot 1. This includes two flyovers and interchanges, 11 pedestrian bridges and three mixed bridges in a dual carriageway.

The Lot 1 stretches from the Ashaiman roundabout and ends at the Akosombo Junction, a distance of 64km. When completed, the Ghana’s Ministry of Roads and Highways expects the upgraded, tolled route to positively impact the lives of around 500,000 residents from underserved populations.

Moreover, the Highway is expected to drive employment opportunities and trade, providing shorter access to the Port of Tema and will also link regions within Ghana as well as to neighbouring countries such as Burkina Faso and Togo. Additionally, the section will improve road safety and better access to healthcare and other essential services.

Funding social programs is one of the surest ways of building back better from the pandemic. Road infrastructure and education play significant roles in Ghana’s economic development and prosperity. The current move by the government will help the country to begin focusing on financing social programs through the issuance of social bonds. Nevertheless, it will require transparency and integrity to prevent the risk of “social-washing”, that is, having proceeds used for causes other than those originally intended. Whilst the implications on public finance may be of concern in the short-term, the long term benefits of such borrowings are huge. However, policy credibility and consistency are key if government wants to make the most of this initiative.

The Social Bond Guidance framework

The Social bond, the youngest of the sustainable bonds family, is expanding so fast and gaining traction in the capital market.

Meanwhile, the move towards sustainable financial markets aimed at meeting the changing needs of people, calls for clarity and distinction among the family of bonds. Investors are keen for clarity because they want to make sure they are investing their monies wisely, both financially and socially.

The issuance of social bonds is guided by the International Capital Markets Association’s Social Bond Guidance (SBG) which aims at promoting transparency, disclosure and integrity in the social and sustainability bond market. The SBG specifies clearly what constitutes a social project.

The Guidance states “Social Projects are projects, activities and investments that directly aim to help address or mitigate a specific social issue and/or seek to achieve positive social outcomes especially, but not exclusively, for target population(s)”.

Such Projects should provide clear benefits that can be described and, where feasible, quantified and/or assessed. The Guidance also states that examples of expected positive social impacts should be stated and may include, but are not limited to, the number of beneficiaries from these projects.

Examples of social projects include basic infrastructure such as clean drinking water, sanitation, and transport; access to essential services such as health, education and vocational training; Affordable housing; Employment generation; and Food security.

The issuer can target populations such as those Living below the poverty line, marginalized populations, Vulnerable groups (including disaster victims), people with disabilities, the Undereducated, Underserved, or Unemployed.

However, it is worth noting that the SBG is a mere guidance and does not constitute a regulation that may attract sanctions upon violation. This means that an issuer might deliver a social bond that does not fully adhere to these principles, although it is strongly recommended.



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