The Ghanaian government’s recent decision to reduce yields on its Treasury Bills by 500 basis points (5%) has been met with applause from financial experts, who believe it is a positive step towards addressing the high interest rates on government securities.
This development comes after the government rejected bids made for the 91, 182, and 364-day bills with yields over 35% in a recent T-Bills auction on March 3, 2023, citing concerns that the yields were too expensive for it to maintain.
The government’s target was to raise GH¢2.78 billion from the T-bills to refinance maturing bills worth GH¢2.55 billion, but it found the yields too high and opted to reject them. Reports indicate that the government wants yields of below 30%, which led to the rejection of all bids from the investors.
The decision to reduce yields is seen as a welcome development by experts, who note that the high interest rates on Treasury Bills were unsustainable for the government and could lead to debt distress if not addressed.
Mr. Joe Jackson, the Executive Director at Dalex Finance, is one of the experts who has expressed his support for the government’s decision.
The Executive Director during an interview commended the government for taking a bold step towards addressing the high cost of borrowing, noting that the reduction in yields would help to alleviate the burden on the government and other investors.
Mr. Jackson disclosed that government’s decision to reduce yields on Treasury Bills would have a significant impact on the financial sector and the economy, adding that: “By reducing the cost of borrowing, the government could free up resources to invest in critical sectors such as infrastructure and social services.”
That notwithstanding, he further divulged that lower interest rates could stimulate economic activity and encourage private sector investment, ultimately leading to increased growth and job creation.
It is worth noting that the government’s decision to reduce yields comes after it incurred an interest cost of GH₵4.416bn on auctioned treasury bills worth GH₵33bn in just three months.
While it remains to see how government’s new decision will impact the economy in the long term, it is clear that reducing the cost of borrowing would have significant benefits for the government, investors, and the broader economy.
Interest On Treasury Bills Scary
It can be recalled that the Executive Director of Dalex Finance, Mr. Joe Jackson had disclosed that interest cost on Government of Ghana Treasury bills for the last three months was estimated at GH¢4.416 billion. A situation he described as ‘scary and problematic’ for the country’s economy in future.
According to him, the government bought a total of GH¢33.08 billion worth of T-bills in the last three months. The treasury instruments were sold by government at an average yield of 35%, he said.
Mr. Jackson noted that the government’s borrowing from T-bills significantly shot up to GH¢13.1 billion in February 2023 at an interest cost of 35.50%.
A trend Joe Jackson cautioned against. “Should you be cautious in buying T-bills?” he quizzed in a tweet.
Read also: Tenants Can Also Buy Fire Insurance Policy to Protect Properties- Prof. Ofori
