Treasury Bill auction exceeds target by GHS 900m at 25% interest cost

The recent auction of treasury bills by the Bank of Ghana, on behalf of the government, has been met with resounding success, raising a total of GHS 3,317 million. This exceeded the planned auction target of GHS 2,417 million by GHS 900 million, indicating a high level of investor confidence in Ghana’s economic stability and growth potential.

Despite the positive outcome, the auction came at a cost to the government, with interest rates on the 91, 182, and 364 day T-Bills coming in at 22%, 25%, and 29% respectively. While these rates are lower than the country’s inflation rate, which currently stands at 53.1%, they still result in negative returns for investors in real terms.

This development reflects the current challenging economic environment in Ghana, and highlights the country’s reliance on domestic borrowing to raise funds. In line with this, the government has set an ambitious target of raising GHS 2,775 million in its next auction by issuing 91 and 182 day T-Bills.

However, this raises concerns about the country’s ability to manage its borrowing needs effectively, particularly given the risks associated with borrowing, such as rising borrowing costs and an over-reliance on debt.

This shift towards domestic borrowing is not unique to Ghana, as many African countries have turned to their local markets to raise funds in the face of economic challenges posed by the COVID-19 pandemic, the ongoing Russia-Ukraine war, and the shutout from international debt markets. While this has been necessary to provide liquidity and avoid over-reliance on external funding sources, governments must balance their borrowing needs with the long-term economic sustainability of their countries.

High levels of debt can limit the capacity of governments to fund essential sectors such as health, education, and infrastructure. Therefore, it is crucial for African governments to prioritize sustainable investments that promote economic growth and job creation, rather than relying solely on borrowing to finance short-term needs.

The success of Ghana’s recent T-Bill auction highlights the potential for domestic borrowing to finance government projects and initiatives. However, policymakers must ensure that borrowed funds are invested effectively, and borrowing costs are managed to prevent an over-reliance on debt.

Ultimately, this will help to promote economic stability, job creation, and improve the standard of living for the people of Ghana and the wider African continent. African governments must strive to strike a balance between borrowing to meet their immediate funding needs and ensuring that they invest in sustainable initiatives that promote long-term economic growth.

While the success of Ghana’s recent T-Bill auction is a positive development, policymakers must remain vigilant and ensure that the country’s borrowing needs are balanced with the long-term economic sustainability of the country. This will require a focus on sustainable investments, effective management of borrowing costs, and prudent fiscal policies that prioritize economic growth and job creation.