Economists warn T-bills borrowing unsustainable despite IMF assurances

The government is being urged to urgently work to restore confidence in the domestic market to enable it to raise long term capital to fund new and ongoing projects.

It is also expected to work expeditiously to complete negotiations with its external creditors, particularly the Paris Club, to unlock some billions of dollars in debt relief.

A Reuters report said Ghana had planned restructuring its loans worth about $10.5 billion in external debt-service relief during its three-year programme with the International Monetary Fund (IMF).

The savings are envisaged to reduce the ratio of the net value of public debt to 55 per cent of gross domestic product, and the ratio of external loan service to revenue to 18 per cent, according to an IMF Staff Report published last Thursday.

In the last couple of years, the government has been heavily reliant on the local treasury market to mostly raise short term Funds through the issuance of Treasury Bills (T-Bills) to finance long term projects, a phenomenon some economic analysts have described as unsustainable and risky because of its likely impact on the size of the country’s domestic debt.

Treasury bills have become the only avenue for government to raise funds to finance development projects because the international capital markets shut their doors to Ghana after the country’s debts reached unsustainable levels.

Gov’t securities

Interest rates on the short-term Treasury market are ticking up again after the 91-day bills for instance fell to 19 per cent in March this year.

Results of tender held on October 6, 2023 for government securities issued last Monday (October 9) indicated that interest on the 91-day Treasury bill has reached 29. 1 per cent, with that of the 182-day bill also increasing to 31.2 per cent.

The interest on the 364-day bill is now pegged at 33 per cent.

Interest rates on government short-term securities had reached alarming rates in December 2022, with the 91-day rate hitting 35 per cent.

However, the rates started tumbling in January, reaching an eight-year low of 19 per cent in March 2023.

The rates have, however, started rising again, increasing to 20%, 22%, 24% and now 26%, 28% and 29.1 per cent within a short period.

Economists warn

The Director of the Institute of Statistical Social and Economic Research (ISSER), Professor Peter Quartey, and the Dean of Business School, University of Cape Coast,  John Gatsi, told the Graphic Business in separate interviews that the government’s continuous reliance on short term instruments such as Treasury Bills (T bills) as the only source of funds to finance long term projects is not sustainable because it could have dire consequences for the economy in the medium to long term.

They described the current trend as “unsustainable” and urged the government to look within by restoring confidence in the domestic market or resort to bilateral and multilateral facilities which came at cheaper rates and longer tenure.

Prof Quartey said in order to avoid paying higher interest rates on loans, the government needed to go back for bilateral and multilateral loans which came at lower interest rates and longer tenure.

“Yes, these kinds of loans come with conditions because there are specific projects that they have to be invested in. These loans are monitored by the donors to ensure that they are not diverted into other areas aside what they were contracted for,” he said.

He admitted that while the commercial loans gave the government some flexibility in spending, it was necessary to ensure that the funds were invested in projects that had the capacity not only to pay back but also impact on the micro economy through job creation and the revival of the productive sectors of the economy.

Bond market

Prof Gatsi, for his part, said the domestic bond market could be another viable source to raise funds domestically if the government could only restore the confidence that had been lost in that market as a result of the DDEP.

To him, the DDEP and its impact on the investments of the individuals and companies was a painful exercise which had forced many to lose confidence in government securities, which until the DDEP was considered the safest but which had become an easy target for a government desperate to reduce its debts.

IMF downplays impact

Meanwhile, in spite of the fears expressed, the International Monetary Fund has played down any impact of rising treasury bill rates on the country’s debt restructuring efforts and debt sustainability, a critical component of the three-year Extended Credit Facility (ECF) with the Bretton Woods institution.

The IMF said the current treasury bill rates were consistent with its expectations in achieving debt sustainability over the medium term.

The IMF Chief Mission to Ghana, Stephane Roudet, said last week at a joint news conference with Ghana’s Finance Minister, Ken Ofori Atta that the cost at which the government was financing itself was of no concern to the IMF.

Source: Graphiconline