Ghana Struggles as Treasury Bill Auctions Fall Short

The government is currently facing significant difficulties in raising funds through the domestic market, as it continues to miss its treasury bill targets for the fifth consecutive week. This persistent shortfall has raised concerns about declining local investor confidence in the economy.

During the treasury bill auction held on July 12, the government aimed to raise GH¢4.72 billion but fell short, raising only GH¢4.4 billion. The pattern continued in the auction held on July 19, where the government targeted GH¢5.3 billion but managed to secure just GH¢3.87 billion.

Similarly, in the auction on July 26, the government raised GH¢4.06 billion, falling short of its GH¢4.77 billion target. The trend persisted on August 2, when the government aimed for GH¢4.36 billion but secured GH¢3.80 billion, missing the target by over GH¢560 million. The previous auction on August 9 saw the government targeting GH¢6.55 billion but raising only GH¢5.30 billion, resulting in a shortfall of more than GH¢1 million.

This situation is particularly alarming as Ghana faces limited funding options. The international capital markets remain closed to the country, and the local bond market is still recovering from the recent domestic debt restructuring. Consequently, the treasury bill market has become the government’s primary source of short-term capital to finance its budget deficit. The lack of interest in treasury bills over the past five weeks raises new concerns for an economy already grappling with significant challenges.

If this trend continues, experts warn that the government may struggle to meet its financial obligations, especially with the next coupon payment for local bondholders due soon. A Capital Market Analyst, speaking to Graphic Business on condition of anonymity, suggested that the undersubscription might be due to the government setting overly ambitious targets that exceed market appetite, rather than a decline in local investor confidence.

The analyst explained that with the coupon rate for the new Domestic Debt Exchange Programme (DDEP) bonds due soon, the government has been setting high targets for its treasury bill auctions to build liquidity for repayments. “February and August are coupon payment periods. In the lead-up to these periods, you’ll notice that the target sizes for the T-bill auctions are typically larger than the government’s financing obligations for the respective weeks,” the analyst said. He pointed out that in the last five weeks, targets have consistently exceeded GH¢4 billion, while market demand has hovered around the same amount.

He added that the demand for treasury bills has remained steady, but the higher targets have resulted in shortfalls. For the upcoming auction, the government is targeting GH¢4.96 billion from the 91-day, 182-day, and 364-day T-bills, raising concerns about the possibility of another undersubscription.

Another factor contributing to the low demand could be the stagnant interest rates on the bills, which have remained unchanged since the beginning of the year. For the previous auction, interest rates for the 91-day, 182-day, and 364-day T-bills were 24.8%, 26.7%, and 27.8%, respectively. The analyst noted that if the government wants to attract more from the market, it may need to offer higher yields, but this option does not appear to be on the table.

Despite these challenges, Professor Peter Quartey, Director of the Institute of Social, Statistical and Economic Research (ISSER), suggested that the government has other funding options, thanks to the recent IMF deal and debt restructuring efforts. He believes that the undersubscription of T-bills may not significantly impact the economy, and that balancing borrowing in the T-bill market to avoid crowding out the private sector could be beneficial.

Ghana has been grappling with severe economic challenges in recent times. In 2022, the country experienced its worst economic crisis in decades, with inflation soaring above 50% and the cedi losing more than half its value against the dollar. This crisis prompted Ghana to seek a $3 billion bailout from the International Monetary Fund (IMF) in December 2022. As part of the IMF bailout conditions, Ghana underwent a domestic debt restructuring programme, which has likely affected investor confidence in government securities, including treasury bills.

Source: Graphic Business