In a recent report, Fitch Ratings has forecasted a decrease in treasury bill (T-bill) yields for Ghana in 2024. This projection comes as the Ghanaian government moves forward with external debt restructuring efforts amidst an ongoing economic recovery.
Despite this anticipated decline, T-bill yields are expected to maintain relatively high levels compared to historical standards. This reflects the persisting challenges of inflation and economic fundamentals that are yet to reach robust levels, according to the UK-based agency.
The agency highlighted saying, “We still expect treasury bill yields to remain high by historical standards,” underscoring the continued economic uncertainties faced by the West African nation.
Despite a modest 2.0 percentage point easing observed since January 2024, T-bill yields are forecasted to sustain their relatively elevated positions. This points to the lingering economic challenges that Ghana is grappling with, including inflationary pressures and the need for stronger economic foundations.
Fitch’s latest assessment of the Ghanaian economy also shed light on the robust profitability of banks operating within the country. It emphasized that these financial institutions are poised to complement ongoing capital-raising endeavors, as encouraged by the Bank of Ghana.
“We expect several banks to raise core capital from shareholders and to seek capital support from the Ghana Financial Stability Fund,” Fitch stated, highlighting the collaborative efforts underway to bolster the financial sector’s resilience.
In response to directives from the central bank, undercapitalized banks have been tasked with presenting credible recapitalization plans. Fitch anticipates that several of these banks will opt to raise core capital from shareholders while also tapping into support from the Ghana Financial Stability Fund, which has received commitments totaling $750 million from the government and the World Bank’s International Development Association.
Foreign-owned banks, in particular, are perceived as being better positioned to navigate Ghana’s challenging operating landscape. This advantage stems from their ability to leverage support from their larger shareholders, providing a buffer against economic uncertainties.
Meanwhile, recent T-bill auctions have witnessed a surge in investor participation, attributed in part to improved liquidity levels resulting from coupon payments on new bonds. The latest auction saw investors submitting total bids valued at GH¢6.97 billion against an auction target of GH¢6.29 billion, all of which were accepted by the treasury.
Yields experienced a notable decline compared to recent auctions, with the 91-day yield dropping by 61 basis points to 27.28%, while the 182 and 364-day yields decreased by 65 and 60 basis points to 29.75% and 30.30%, respectively. This trend reflects the changing dynamics of Ghana’s financial markets and the cautious optimism surrounding economic recovery efforts.
Significant Implications for Various Stakeholders Within the Economy
In the intervening time, the anticipated decline in T-bill yields for Ghana in 2024 carries significant implications for various stakeholders within the economy. Firstly, a decrease in T-bill yields could translate into lower borrowing costs for the government. This can alleviate some pressure on public finances, freeing up resources that can be redirected towards priority areas such as infrastructure development, social welfare programs, and healthcare.
Secondly, lower T-bill yields may have a positive impact on private sector borrowing costs. Businesses and individuals seeking financing could benefit from reduced interest rates, which could stimulate investment, spur economic activity, and promote job creation. Lower borrowing costs can also incentivize entrepreneurial ventures and support small and medium-sized enterprises (SMEs), driving innovation and fostering economic diversification.
On the flip side, a decline in T-bill yields could pose challenges for investors, particularly those who rely on fixed-income securities for income generation. Pension funds, insurance companies, and individual investors seeking stable returns may find it increasingly challenging to achieve their financial objectives in a low-yield environment.
As a result, these investors may need to reassess their investment strategies, potentially reallocating capital towards riskier assets in pursuit of higher returns.
Moreover, the impact of falling T-bill yields on the banking sector warrants consideration. Banks, which often hold government securities as part of their asset portfolios, may experience compressed net interest margins as yields decline. This could affect profitability and liquidity levels within the banking system, prompting financial institutions to explore alternative revenue streams and risk management strategies.
Additionally, the outlook for foreign investor sentiment could be influenced by the trajectory of T-bill yields. A sustained decrease in yields may enhance Ghana’s attractiveness as an investment destination, bolstering confidence among international investors and potentially attracting foreign direct investment (FDI). However, factors such as currency stability, political stability, and regulatory transparency will also play crucial roles in shaping investor perceptions and decisions.
In all, the anticipated fall in T-bill yields in Ghana in 2024 carries multifaceted implications for the economy, government finances, private sector activity, investor behavior, and the banking sector. While lower yields may offer certain benefits such as reduced borrowing costs and enhanced investment opportunities, they also pose challenges for income-seeking investors and financial institutions.
Moving forward, policymakers, investors, and market participants will need to adapt to the evolving interest rate environment and navigate its implications prudently to promote sustainable economic growth and financial stability.
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