The Government of Ghana is showing no signs of slowing down on its voracious appetite for borrowing against the candid advice of many experts as the Finance Minister has disclosed plans to further borrow a whopping GH¢38.959 billion via treasury bills for the third quarter of 2023.

According to its issuance calendar released by the Ministry of Finance, this will be done via the issuance of the 91-day, 182-day and 364-day bills. The short term debt instruments will be issued weekly to meet government rising liquidity needs.

Instructively, they will be done through the primary auction with settlement being the transaction date plus one working day.

The government, however, stated that the gross borrowing amount is indicative to guide the market and may be revised when transaction adverts are published. It may also update the issuance calendar on a rolling monthly basis, to reflect a full quarter financing programme.

It assured all stakeholders and the public that it will continue to strive for greater predictability and transparency in the domestic capital market.

Since October 2022, the government’s only source of borrowing has come from the treasury market due to the economic challenges facing the country and the country’s inability to access the Eurobond market.

All financial instruments have been restructured with the exception of T-bills as a result of the economic headwind the country is facing. In the first four months of 2023, the country’s domestic debt rose by GH¢15.7 billion to GH¢247.9 billion. The finance ministry disclosed that GH¢3.07bn worth of T-bills will be issued today August 11, 2023.

Meanwhile, the GH¢3.07 billion to be borrowed will come from the 91-day to the 364-day bills. This is to refinance GH¢2.84 billion maturing bills.

Meanwhile, according to analysts, a government which decides to borrow – either because it has programmed a budget deficit or needs to refinance maturing debts – faces two non-mutually exclusive possibilities: borrow domestically in the local currency or borrow externally in a foreign currency.

Interest Rates to Go Higher

According to analysts, given the relatively larger target size combined with liquidity constraints posed by Bank of Ghana’s Open Market Operations (OMO) bills, yields will likely edge higher this week.

Delving into the market, a number of factors drive higher local borrowing costs. Firstly, local borrowing isn’t concessional. Concessional loans come with low interest and normally a grace period before principal repayments begin. But these loans are available only to poor countries that meet the criteria. Unfortunately, Ghana doesn’t meet the criteria, as such, have to borrow at huge interest rates which exacerbates the country’s debt situation.

The second reason is related to high inflation and low domestic savings. Ghana’s inflation rate is on rooftops and no investor will invest at a rate lower than inflation because they will be making losses (negative real interest rate). Therefore, for the government to be able to attract investors, it will have to charge higher interest (usually above inflation rate).

Moreover, Ghana’s domestic debt market is not yet deep and liquid. The small domestic debt market and a limited pool of funds restricts government to borrow short-term and at higher interest rates.