The Director of the Institute of Statistical Social and Economic Research (ISSER), Professor Peter Quartey has warned that the government’s continuous reliance on short term instruments such as Treasury Bills (T bills) as the only source of funds to finance long term projects is not sustainable because it could have dire consequences for the economy in the medium to long term, despite the assurances from the IMF.

Professor Peter Quartey described the current trend as unsustainable and thus, urged the government to look within by restoring confidence in the domestic market or resort to bilateral and multilateral facilities which come at cheaper rates and longer tenure.

“The government needs to go back for bilateral and multilateral loans which came at lower interest rates and longer tenure. Yes, these kinds of loans come with conditions because there are specific projects that they have to be invested in. These loans are monitored by the donors to ensure that they are not diverted into other areas aside what they were contracted for.”
Peter Quartey

The economist noted that while the commercial loans give the government some flexibility in spending, it is necessary to ensure that the funds are invested in projects that have the capacity not only to pay back but also impact on the micro economy through job creation and the revival of the productive sectors of the economy.

The Bond Market

John Gatsi, the Dean of Business School, University of Cape Coast, on his part, said the domestic bond market could be another viable source to raise funds domestically if the government can only restore the confidence that had been lost in that market as a result of the DDEP.

To him, the DDEP and its impact on the investments of the individuals and companies was a painful exercise which forced many to lose confidence in government securities. He noted that until the DDEP, it was considered the safest but has become an easy target for a government which is desperate to reduce its debts.

Meanwhile, in spite of the fears expressed, the International Monetary Fund (IMF) has played down any impact of rising treasury bill rates on the country’s debt restructuring efforts and debt sustainability, a critical component of the three-year Extended Credit Facility (ECF) with the Bretton Woods institution.

The IMF stated that the current treasury bill rates are consistent with the country’s expectations in achieving debt sustainability over the medium term.

The IMF Chief Mission to Ghana, Stephane Roudet, indicated that the cost at which the government was financing itself was of no concern to the IMF.

Meanwhile, the government is being urged to urgently work to restore confidence in the domestic market to enable it to raise long term capital to fund new and ongoing projects. It is also expected to work expeditiously to complete negotiations with its external creditors, particularly the Paris Club, to unlock some billions of dollars in debt relief.

Ghana, meanwhile, has planned to restructure its loans worth about $10.5 billion in external debt-service relief during its three-year programme with the International Monetary Fund (IMF).

The savings are envisaged to reduce the ratio of the net value of public debt to 55 per cent of gross domestic product, and the ratio of external loan service to revenue to 18 per cent, according to an IMF Staff Report.

In the last couple of years, the government has been heavily reliant on the local treasury market to mostly raise short term Funds through the issuance of Treasury Bills (T-Bills) to finance long term projects, a phenomenon some economic analysts have described as unsustainable and risky because of its likely impact on the size of the country’s domestic debt.

Treasury bills have become the only avenue for government to raise funds to finance development projects because the international capital markets shut their doors to Ghana after the country’s debts reached unsustainable levels.