Investor confidence in the future of Ghana’s economy appears to be very low as evidenced by the poor response to the government’s one-year treasury bill offering. This hesitancy to lend money to the government for longer periods highlights broader concerns about the country’s economic stability.
Despite the government’s efforts to stabilize the economy following the Domestic Debt Exchange Programme, which resulted in significant losses for many investors, challenges persist. The June 7 treasury bill auction revealed that only GH¢167.05 million, or 3% of the total amount raised, came from investors purchasing one-year notes. This is even lower than the 5% recorded during the May 31 auction.
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Every Friday, the government seeks to raise funds through three types of treasury bills: the 91-day bill, the 182-day bill, and the one-year note. Although the one-year note offers a higher interest rate, investors prefer the shorter-duration 91-day bill. This preference places additional pressure on government financing, as it must repay these shorter-term borrowings more quickly.
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Despite exceeding its overall target by 19% during the latest auction, the government still faces significant challenges. The target was to raise GH¢4.4 billion, but nearly GH¢5.3 billion was secured. Of this amount, approximately GH¢3.4 billion came from the 91-day bills, accounting for almost 65% of the total, while about GH¢1.7 billion was raised through the 182-day bills, representing 32%. The one-year note, despite offering a higher interest rate of 27.92% compared to 25.03% for the 91-day and 26.96% for the 182-day, saw minimal interest.
This low subscription rate for the one-year note aligns with the latest confidence surveys conducted by the Bank of Ghana (BoG) in April 2024, which indicate a decline in both business and consumer confidence.
“On the part of consumers, these sentiments were on account of uncertainties about future economic conditions, while businesses expressed concern that recent exchange rate volatility and unstable intermittent power supply situation could significantly raise their operational costs moving forward”, the Governor Dr. Ernest Addison stated in the post-Monetary Policy Committee media briefing.
With limited access to external borrowing, the government is increasingly reliant on treasury bills to finance many of its programmes, many of which extend beyond the three-month period covered by the 91-day bills. This reliance on short-term borrowing for long-term projects creates a mismatch, forcing the government to borrow more frequently and exacerbating the country’s already high domestic debt. Furthermore, increased government borrowing from the domestic market restricts the availability of funds for the private sector, limiting its ability to expand, hire more employees, and generate additional tax revenue.
