The Bank of Ghana (BoG) has released guidelines for the government securities market: primary dealers and bond market specialists, to guide the purchase of government securities in the domestic market to the provisions in the Public Financial Management Act, 2016 (Act 921).
“These guidelines are not intended to be all encompassing,” the Bank of Ghana mentioned adding that they are meant to be used with reference to other directives issued by its outfit and the Ministry of Finance (MOF).
Giving some insights on the reason for issuing Government Securities, the Central Bank revealed that they are for the “financing of Government transactions, to redeem maturing securities and for the development of the Ghana financial markets”.
“The principal and discount/interest on Government securities represent a charge on the Consolidated Fund”.
Additionally, all payments in respect of subscription and redemption shall be made in the currency used for issuing the securities.
“All securities issued shall be denominated in the local currency-Ghana Cedis (GHS) except when explicitly stated by the MOF,” the Bank of Ghana alerted.
The primary market for the issuance of Government of Ghana (GoG) and BoG securities is the wholesale auction, which is opened to only authorised dealers – Primary Dealers.
“Only financial institutions authorised by the BoG shall be eligible to participate in the wholesale auction as Primary Dealers”.
Accordingly, all primary dealers must participate in the primary auction of Treasury bills by purchasing bills for their own accounts and for their trading books.
Highlighting how the notification of issuance is going to be done, the Finance Ministry will publish the Medium-Term Debt Strategy (MTDS), the Annual Borrowing and Recovery Plan of the financial year and a quarterly rolling calendar for the issuance of government securities.
Based on the published calendar, the Ministry of Finance (MoF) shall announce within a week before an auction, the amounts and specific details of the financial instruments available at the next auction and their maturity profiles.
For the issuance of notes and bonds, a prospectus will also be published in the daily newspapers and on MoF and BoG websites on periodic basis.
Also, Competitive bids will be ranked in descending order of price or ascending order of discount/interest rate for the purposes of pricing and allotment.
“Bills will be sold to applicants whose competitive bids are at or above the lowest price or at or below the highest rate at which the auction committee will decide that any competitive bid should be accepted,” the Bank of Ghana cautioned.
Conversely, for non-competitive bids, they will be allotted at the non-competitive sale price/rate which is the average of the prices/rates at which competitive bids have been accepted.
“Not more than 20% of the amount submitted per security will be accepted noncompetitively”.
Payment and settlement
Unless otherwise announced, the settlement period for primary issues of government treasury bills shall be the first working day after the auction i.e., ‘T+1’.
In the case of GOG notes and bonds issues open to external investors, settlement shall be T+2, that is, two day working days after the auction, to enable external investors to arrange for the domestic currency required for successful allotments.
For 2020 and beyond, Government’s efforts at having a well-structured and a well-functioning money market is still on course, the Bank of Ghana enunciated.
“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 reform is expected to help improve the efficiency and transparency of the Ghana Fixed Income Market (GFIM)”.
