Government has been relying heavily on the money market to borrow funds, according to recent reports. This is due to the fact that the Treasury market is presently the only source of borrowing for the government. As a result, the government has been forced to offer increasingly attractive yields on its Treasury bills in order to entice investors to lend it money.
This situation has led to a significant increase in yields on money market securities in 2022, as investors priced in higher inflation expectations to improve their real returns. For instance, the yield on the benchmark 91-day Treasury bill increased from 12.51% in December 2021 to settle at 35.36% in December 2022. This dramatic increase in yields has had a profound impact on the government’s borrowing costs, and has significantly increased its debt service burden.
Despite the high borrowing costs, the government was still able to raise a total of ¢70.95 billion in the money market auctions for 2022. However, this amount was out of total bids worth ¢72.83bn, indicating that demand for government debt may have exceeded supply.
Looking ahead, it is expected that the yield on Treasury bills will go down in the coming weeks, which could help to reduce the government’s debt service burden. As of March 10, 2023, the 91-day bill is currently going for 19.04%, which represents a significant retreat from its December 2022 level.
However, it is important to note that the government’s total spending in 2022 exceeded the target by 5.2%, which is a cause for concern. The primary driver for the fiscal slippage was interest payments, which were a major contributor to the government’s rising debt service burden.
Moving forward, it will be important for the government to closely monitor its spending and ensure that it remains within budget. This will be crucial for ensuring that the government does not accumulate too much debt and that it is able to continue borrowing from the money market on favorable terms. Additionally, the government may need to explore alternative sources of borrowing in order to reduce its reliance on the money market in the future.