The government plans to borrow GH¢4.865 billion from the Treasury bills market during the
auction today Friday, May 24. This significant borrowing target is aimed at supporting the
country’s operations and marks one of the largest amounts since the beginning of April this year.
Treasury bills have become a primary source of borrowing for the government in the domestic market following the Domestic Debt Exchange Programme (DDEP). Previously, the government issued bonds alongside treasury bills to raise funds. However, with bond issuance currently on hold, the government is now heavily reliant on treasury bills.
Unlike bonds, treasury bills are short-term instruments, with the longest maturity being one year. This reliance on short-term borrowing for long-term projects increases borrowing costs and puts additional pressure on the government to repay the debt in a shorter timeframe, compared to bonds which offer repayment periods of two to ten years.
Between May 1 and May 17 this year, the government borrowed approximately GH¢11.6 billion, compared to GH¢13.2 billion in April and GH¢22.2 billion in March.
Interest rates on treasury bills have been experiencing a marginal but steady decline each week.
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Market observers predict this trend will continue for two primary reasons: a relative reduction in government borrowing compared to the first quarter of 2024, and the introduction of pricing guidance. These guidelines mandate that investors can only quote interest rates within a specified range, preventing them from quoting excessively high rates.
“Over the past three months, we’ve seen T-bill rates steadily drop. This can be attributed to the government's new strategy of issuing pricing guidance to primary dealers in the fixed-income market, advising investors on the rates the government is aiming to achieve. It comes as no surprise that rates have been dropping by an average of 25 basis points for all tenors (91, 182, and 364-day T-bills), as the government effectively decides these clearing rates, rather than allowing market forces to determine them,” explained Kodzo Dziwornu Letsa, a Fixed Income Analyst, in an earlier interview with The Accra Times.
The government benefits significantly from the declining interest rates, as it can borrow at lower rates than those at which maturing treasury bills were sold.
However, there is a potential risk to this declining trend in interest rates. The pressure on the government during election seasons to complete various projects could lead to an increase in borrowing for infrastructure projects, which might push interest rates up again.
As the Monetary Policy Committee concludes its three-day meeting today, it will consider the government’s borrowing needs in the coming months to determine whether to maintain the policy rate at 29% or adjust it.
