Government takes on another GHS 2.2bn fresh debt at near-inflation interest rate

The Central Government, through the Ministry of Finance (MoF), has taken on fresh debt amounting to some GHS 2.22bn through the issuance of its 91 and 182 day treasury bills.

The short term debt instruments auctioned on Friday, September 9, and issued on Monday, September 12, exceeded government’s initial target of GHS 1.68bn.

Bids tendered for the 91 day T-bill amounted to GHS 1,427m of which the government accepted GHS 1,410m rejecting some GHS 17m bids tendered by the various banks, insurance firms and other institutional investors.

For the 182 day, bids tendered amounted to GHS 860m of which the Central Government accepted GHS 815m rejecting bids to the tune of GHS 45m.

Interest rates on the auctioned 91 day and 182 day T-Bills were 29.8% and 31.1%.

For the 182 day T-bill, interest rate on the short term debt instrument is almost the same as the country’s headline inflation which stands at 31.7% as at July 2022.

The Ghana Statistical Service (GSS) is expected to announce the country’s headline inflation for the month of August in the coming days.

Should the country record a disinflation (decline in inflation rate) for the month of August, the 31.1% interest rate on the 182 day T-bill (and possibly for the 91 day T-bill), will result in positive real returns on the debt security.

The GHS 2.22bn debt auctioned last Friday by the government, adds to its domestic debt stock.

With increased borrowings on the domestic debt market, the country’s public debt stock is expected to rise with domestic debt as a ratio of government’s total debt stock also expected to increase.

The country’s stock of public debt increased to 78.3 percent of GDP (GHS 393.4 billion) at the end of June 2022, compared with 76.6 percent of GDP (GHS 351.8 billion) at the end of December 2021.

Of the total debt stock, domestic debt was GHS 190.1 billion (37.8 percent of GDP), while the external debt was GHS 203.4 billion (40.5 percent of GDP).

Meanwhile, the government, coming this Friday, September 15, will once again be looking to issue the 91, 182 and 364 day T-bills with the hope of raising some GHS 1.77bn in new debt.

Source: norvanreports