Gov’t Increases Treasury Bill Rates Amidst Heavy Borrowing, Sparking Concerns of Overspending

The government has raised interest rates on all three treasury bills as it continues to borrow heavily to fund its programmes. Last Friday’s auction marked the first time in 10 weeks that the government met its borrowing target, securing GH¢5.53 billion, surpassing the GH¢5.4 billion goal by 2.4%.

This was one of the few instances where the government aimed to raise more than GH¢5 billion and achieved its target. However, concerns are growing over the government’s aggressive borrowing since August, raising fears of overspending in the second half of the year, particularly as the election approaches.

The cost of borrowing is also climbing, with the government increasing treasury bill rates to attract lenders. The 91-day treasury bill rate rose slightly from 24.90% to 24.91%, the 182-day bill increased from 26.78% to 26.80%, and the one-year note saw the biggest rise, going from 27.92% to 28.07%. This 15-basis point increase on the one-year note was intended to boost demand for longer-term borrowing, but investor interest remained low at 4.4%. This indicates that investor confidence in the government remains weak, as they are hesitant to lend for longer periods.

 

On the other hand, the 91-day bill, despite only a one basis point increase, attracted significant demand, accounting for 84.8% of the total. This suggests that investors are more comfortable lending to the government for shorter periods.

Since August, interest rates on treasury bills, which had been falling gradually since the second quarter, have risen to sustain the government’s borrowing. This has not only increased the cost of borrowing for government but could also push up lending rates from financial institutions to the private sector.

 

As the Bank of Ghana’s Monetary Policy Committee meets from September 24 to 27 to review the economy and set the policy rate, the recent rise in treasury bill rates could prevent any significant drop in the policy rate, which has remained at 29% since January, 2024. While inflation has decreased from 25.8% in March to 20.4% in August, the higher interest rates on treasury bills may limit any substantial changes in the policy rate, with experts predicting either a marginal drop or no change at all.

Source:thehighstreetjournal.com