Developments on the macro-economic front is seriously posing a huge threat to the government’s debt restructuring programme as interest rates on treasury bills reach the 30 per cent mark after falling to 19 per cent at the beginning of this year.
The 354-day T- bill is being auctioned for 30 per cent, with 90 and 182-day bills are also creeping up to 26 and 27 per cent respectively.
According to the Central Bank’s weekly auction of government-dated securities for this week, the government hopes to raise almost GH¢4 billion on the debt market to finance its expenditure.
Sources indicate that the economy seems to be going back to the days of the high-interest rates regime, the very recourse to our current unending domestic debt exchange programme.
While government was currently engaged in a second round DDEP involving pension funds and cocoa bills at single digit coupon payments, interest rates on government treasury bills however, are inching up to double digits and at 30 per cent, a clear distortion of the yield curve.
For many experts, the earlier interest rates trending down during the early parts of the year was a piece of good news as it meant a re-alignment of the yield curve that was necessary for the government to realise savings from the DDEP and restore confidence in the secondary bonds market.
However, it seems there are huge challenges achieving this target of resetting the interesting rate regime as per this week’s interest rates on treasury bills.
The International Monetary Fund (IMF), in its report on Ghana’s three-year Extended Credit Facility (ECF) programme, noted that the country’s debt restructuring plans still leave a substantial need for T-bill issuance in the near term.
The fund, however, noted that this exposed the country to uncertainty in domestic market conditions, though the programme implementation and outreach may help mitigate financing risks.
The government’s options are limited with regard to finances and that T-bills remain the only option, the current interest rates may not be sustainable in the long run.
It poses serious challenges for the economy. It threatens businesses survival in the midst of higher taxes, and the economy will further contract.
The macro-economic targets set by the government in its mid-review seems to be going out of sync. The fundamentals look weaker than we originally anticipated.
It seems we are on a long-winding economic circus, the end of which we cannot predict. We need to be told what is the state of the anticipated US$ 15 billion financing gap? What is happening on the Creditor Committee front with our bilateral creditors and the debt reliefs being sought from the Paris Club?
Quick decisions and actions are needed in these times to reassure the market and rebuild confidence. There are apprehensions in some quarters and the earlier the economic managers act to send positive signals the better it is for us.
Government although expresses confidence and assurances of turning the corner with regard to prospects of the economy, the data, however, doesn’t support such optimism.
Reports are not pessimistic of a turnaround in the economic fortunes of the country. However, indicators such as the persistent rising cost of borrowing on especially government dated securities does not give us the bold confidence in these times.
Even more worrying is that fact that the private sector is being shoved off from the funding space with regard to high cost of borrowing. With government’s inability to embark on capital expenditure on account of the IMF programme, the private sector, therefore, needs the fiscal space to expand, generate the needed growth for the overall economic development.
However, these developments such as the high cost of borrowing and inflation reversing its downward trend presents us with less options than to be pessimistic in the short term economic outlook for the country.
The challenges are indeed very real.