Mr Seth Terkper, a former Finance Minister, has cautioned the government of Ghana against relying on Treasury Bills (T-bills) to finance the country’s long-term development.
The Former Finance Minister explained that T-bills, which are short- term debt instruments with maturities ranging from 91 days to a year, are not sustainable options for financing Ghana’s economic and development needs, which are long-term in nature.
“Domestic borrowing through T-bills is too narrow, and it will raise domestic cost. Ghana, an economy, which is by developing or lower middle-country standards, should not be depending on such a narrow base. It’s not sustainable.”Seth Terkper
Mr Terkper, who is also an Accountant, made this known during a media engagement ahead of the 2023 Mid-year budget review in Accra.
Mr Terkper further explained that relying on T-bills could expose the economy to risks, lead to higher demand on yields, and dip investor confidence, should the government be unable to honour the bills.
The former Finance Minister also added that such a situation could result in a rise in interest rates, inflation and increase the country’s debt levels.
Seth Terkper, meanwhile, called for an urgency in increasing revenue and reducing expenditure to ensure that the country has a successful debt restructuring and implementation of the IMF programme for economic recovery and resilience.
The former Minister, who led Ghana to its 16th bailout programme with the International Monetary Fund (IMF), said confidence in the bond market has waned due to the Domestic Debt Exchange Programme (DDEP).
Government to Borrow More At Higher Cost
Meanwhile, in the midst of the cautioning, the government has scheduled to further borrow GH¢2.66bn early next week at higher cost in the Treasury market.
This will be done via the issuance of the 91-day, 182-day and the 364-day bills to cover estimated maturities worth GH¢2.50 billion.
Other Analysts also argued that the notable spread of GH¢164.44 million between the target and upcoming maturities highlights the government’s reliance on short-term funding. They believe the treasury will likely accept higher yields to achieve its auction target.
Last week, the government accepted all treasury bids, translating to an uptake of GH¢2.13 billion. It recorded about 19.5% oversubscription of its T-bills sale.
However, the cost of borrowing the domestic instrument went up for the 15th consecutive week. According to the result published by the Bank of Ghana, the government’s T-bills was oversubscribed from the sale of short-term instruments.
A chunk of the bids came from the 91-day T-bill, where ¢1.812 billion was mobilised. The government, however, accepted all the bids tendered. Again, the government accepted all the ¢313.59 million tendered for the 182-day bill.
Meanwhile, interest rates continue to surge along the yield curve. Yield on the 91-day increased 29 basis points to 24.69%, while the 182-day gained 38 basis points to 26.41%. The 364-day yield remained unchanged at 29.65%.