Mr. Isaac Kwasi Mensah, a Financial Analyst and Portfolio Manager at SIC Financial Services Limited, has poured water on government of Ghana’s plans to raise a whopping GH¢38.959 billion from the money market in the third quarter, noting that the government is likely to miss the target due to the current events of the economy.

Mr Kwasi Mensah while reacting to the announcement from the finance ministry in an interview with the Vaultz News, cited last week’s instance where the government missed its weekly T-bills Target, blaming it on rising inflation rate.

With the country’s July inflation inching upward, Mr. Isaac Kwasi Mensah noted that treasuries also have to compete with inflation, which measures the pace of rising prices in the economy.

“With inflation still on the roof, it doesn’t make sense to still stick with bonds and Treasuries because one of the best ways to beat inflation is to dispose off bonds and buy stocks in inflationary pressure. Even though T-bills are the most liquid and safest debt security in the market, fewer investors tend to buy them in times when the inflation rate is higher than the T-bill return.

“That is the case of Ghana. Inflation is way above the yields of the T-bills and with rational investors, they tend to look elsewhere. I think that’s what happened in last week’s auction. Just after inflation rose, the T-bills was undersubscribed, reflecting Investors response. Taking that response into consideration and all other things remaining constant, the government will likely miss that revenue target for this quarter.”
Mr. Isaac Kwasi Mensah

The analyst underscored the importance of the money market noting that the advantages of money market funds are increasingly obvious, not just for the corporate financial officers who have always used them as an efficient and high-yielding place to hold money, but for thousands of ordinary people, who are at least receiving something for their cash.

The analyst referenced the recent increment in the rates in last week’s auction, noting that “if you are a money-market fund investor, rising interest rates can be delightful. But in finance, a benefit is rarely without cost”.

Treasury Yields to Affect the Stock Market

However, Mr Kwasi Mensah noted that the rise in in Treasury yields will affect the stock market. He explained that this is because interest rates are the most significant factor in determining Treasury yields, and they play an influential role in the stock market as well.

Mr. Isaac Kwasi Mensah explained that in order for the government to realize its revenue goals from the money market, it will be forced to increase the interest rate to entice investors to the short end of the market.

“The government will be forced to start paying enticing interest rates to attract investors. But this will further aggravate the country’s already dire debt situation. Also, signs of weakness in the banking system are worrisome and that will make investors hold back a little, given the debt restructuring is not yet over.”
Mr. Isaac Kwasi Mensah

It can be recalled that government treasury bills auction fell short of target marginally last week, as interest rates continued to surge on the money market.

According to the result published by the Bank of Ghana, the government secured GH¢2.179 billion as against a target of GH¢2.261 billion, as the T-bills sale fell short of the target by 3.6%.

Majority of the bids came from the 91-day bill as about GH¢1.384 billion of the bids were tendered. All of the bids were accepted by the Treasury. For the 182-day bill, about ¢649.39 million of the bids were tendered, in which all the bids were accepted. About GH¢145.02 million were, however, gotten from the sale of the 364-day bill.

According to the auction result, the 91-day yield went up to 25.57%, from the previous 25.24%. That of the 182-day bill also increased by 0.14% to 27.28%. Again, the one-year bill inched up to 30.49%, from 30.30% the past week.

Meanwhile, Mr Kwasi Mensah was commenting on the announcement from the finance minister on Friday. The Finance Minister 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.