In September 2024, the government of Ghana significantly boosted its debt stock by borrowing GH¢23.6 billion through Treasury bills (T-bills) as part of its ongoing efforts to meet financial obligations.

This represents a 24.7% increase from the previous month, highlighting the government’s growing reliance on short-term borrowing to manage its fiscal pressures. The surge in borrowing came amid rising yields and an increasingly challenging refinancing environment, which may pose risks for the country’s fiscal outlook.

Despite the significant GH¢23.6 billion raised from T-bills in September, the total uptake fell short of the government’s target by 19.6%, or approximately GH¢5.8 billion.

The gap between the targeted borrowing and actual uptake underscores the growing difficulty the government faces in attracting sufficient funds through the domestic debt market.

This shortfall is attributed to a marked increase in the supply of Treasury offers, which grew by GH¢8.2 billion, a 38.7% rise month-on-month.

This outpaced the total bids submitted by investors, which only increased by GH¢4.7 billion. While the Treasury accepted all bids that were tendered, the lower-than-expected demand reflected market participants’ concerns about the increasing risks of refinancing government debt.

Rising Yields and Mounting Refinancing Risk

One of the key developments in September was the noticeable increase in T-bill yields, as market participants priced in mounting refinancing risks.

The 91-day T-bill yield surged by 85 basis points (bps) to 25.64% month-on-month, while the 182-day yield rose by 24bps to 26.92%. The 364-day yield saw the most significant jump, climbing 86bps to 28.68%.

These increases in yields highlight investors’ concerns about the government’s growing borrowing needs and the risk that the Treasury may struggle to refinance its debt as it matures.

The Treasury’s decision earlier in the year to implement a yield compression strategy, aimed at reducing borrowing costs, appeared to be suspended in September. With refinancing pressures intensifying, the government had little choice but to offer higher yields to attract sufficient investment.

The upward movement in T-bill rates comes at a time when the government is grappling with significant fiscal challenges.

With large portions of debt maturing and limited options for raising funds from external sources, domestic borrowing has become the primary avenue for meeting short-term financial needs. However, the increasing yields mean the cost of servicing this debt is rising, further straining government finances.

Policy Rate Cut and Its Impact on T-bills

The rise in T-bill yields also coincided with a 200bps cut in the Bank of Ghana’s policy rate, which was reduced to 27.0% in September. Analysts suggest that this rate cut has improved the relative attractiveness of T-bills compared to Bank of Ghana bills.

As the central bank eases its monetary stance, T-bills become a more appealing investment, especially for institutional investors seeking higher yields in a low-interest-rate environment.

While the policy rate cut may stimulate demand for T-bills in the short term, analysts caution that it is unlikely to result in a meaningful decline in yields anytime soon.

The government’s borrowing requirements remain substantial, and with upside risks from ongoing fiscal pressures, yields are expected to stay elevated in the near future. Investors are likely to demand higher compensation for the perceived risks associated with lending to the government.

Long-Term Implications for Ghana’s Debt Profile

The GH¢23.6 billion added to Ghana’s debt stock in September is part of a broader trend of increasing reliance on domestic borrowing. As the government continues to face challenges in securing external financing, T-bills and other domestic debt instruments have become critical tools for addressing short-term funding needs.

However, this strategy comes with significant risks. The rising cost of borrowing, as evidenced by the higher T-bill yields, could lead to an unsustainable debt burden if not carefully managed. In addition, the government’s ability to roll over maturing debt at affordable rates will be crucial in determining its fiscal stability in the coming months.

As refinancing pressures mount and the cost of debt servicing increases, the government will need to explore alternative measures to balance its fiscal priorities.

Structural reforms aimed at boosting revenue, reducing wasteful spending, and improving debt management practices could help alleviate some of the pressure on the Treasury. Additionally, finding ways to secure concessional external financing could reduce the reliance on expensive domestic borrowing.

While the surge in borrowing reflects the country’s urgent financing needs, it also raises concerns about the sustainability of its debt profile, especially as yields continue to rise.

Moving forward, prudent debt management and fiscal discipline will be essential to ensure that Ghana can navigate these risks without jeopardizing its long-term economic stability.