The Bank of Ghana is projecting that government will need to borrow GH¢852 million in the final week of 2020 as the government boosts the sale of treasury securities to cover record budget deficits this year due to the coronavirus pandemic.
The steep increases in government borrowing is also very necessary as tax revenues have fallen during the pandemic causing government revenue margins to fall short of both their targets and expenditures.
For instance, by the end of the third quarter this year, government’s total expenditure stood at 18.8 percent of Gross Domestic Product (GDP) as against total revenue and grants of 9.4 percent of GDP.
Giving insights into the upcoming auction of Government of Ghana securities to be held on 28th December, the Bank of Ghana said government seeks to borrow a total target amount of GH¢852 million for 91/182/364 Treasury bills. The predicted weighted average discount rate and interest rate per annum for the treasury sale for the period starts from Monday, 28th December– 1st January 2021 and it’s as follows:
Whereas for the 91 Day bill, the projected discount rate and interest rates hovers around 13.61 percent and 14.09 percent respectively, similar rates predicted for the 182 Day bill lingers at 13.19 percent and 14.12 percent correspondingly.
At the latest Government of Ghana (GOG) Securities Auction, Treasury bill bids were undersubscribed for the second week running causing the government to fall short of its target amount by 10.81 percent losing GH¢109.26 million sales for the week
Results presented by the Bank of Ghana indicate that the total amount of the 91/182 Day bills summed up to approximately GH¢901.74 million bids falling below the stipulated target amount of GH¢1011 million, leaving the government with no option but to accept all bids tendered by banks.
Similarly, at the immediate past treasury sales, government lost sales worth a whooping GH¢827.25 million, depicting a sharp decline of approximately 46 percent even though interest rates continue to remain fairly stable.
A summary of the recent weekly auction shows that the government auctioned GH¢805.39 million in three-month bills at a discount rate ranging from 13.55 percent to 13.65 percent. Another GH¢805.39 million in six-month bills auctioned at a discount rate extending from 13.1 percent to 13.25 percent yearly.
Although investors seem to shy away from short-term securities, long-term debts appear to have picked up even though they are usually unsecured implying that they naturally carry more risk. Total bonds traded hit GH¢1,839.65 million at the immediate past auction showing a bounce back in investors’ confidence.
The Bank of Ghana has however affirmed that 2020 and beyond, government’s efforts at having a well-structured and a well-functioning money market is still on course.
“Government has streamlined its engagements with investors as a way of further developing the primary and secondary Dealers and licensed investment dealers to conduct Government’s bond market operations“.
This is expected to help improve the efficiency and transparency of the Ghana Fixed Income Market (GFIM) and also boost investors’ confidence to purchase more securities to enable the government defray its debts.
