Ghana‘s Treasury Bill Strategy: Balancing Debt and Growth
Table of Contents
- 1. Ghana’s Treasury Bill Strategy: Balancing Debt and Growth
- 2. The State of Government Borrowing
- 3. Treasury Bills: A Necessary Tool?
- 4. Budgetary Implications and Future Outlook
- 5. Debt Management Strategy and Interest Rates
- 6. Navigating Ghana’s Financial Path
- 7. Does Ghana’s reliance on treasury bills, especially for debt rollover, pose a threat to long-term fiscal sustainability?
- 8. Ghana’s Treasury Bills: An Interview on Debt Sustainability and growth
Ghana’s reliance on treasury bills (T-bills) for short-term financing has come under scrutiny. recent data reveals that a meaningful portion of new borrowing is being used too service old debt, raising questions about the sustainability of this approach. Understanding the dynamics of T-bill usage is crucial for assessing Ghana’s economic stability and future prospects.
The State of Government Borrowing
In early 2025, government borrowing became a contentious issue. Dr. Gideon Boako, Tano North MP and Economic Advisor to Former Vice President Dr. Mahamudu Bawumia, alleged significant borrowing by the new government within its first month. According to Dr.Boako, “If you follow the trend within January alone, contrary to what we have been told by the government that we want to cut the borrowing and bring the rates down, this government in four weeks has borrowed GH¢38.5 billion.”
counterclaims emerged, with some officials asserting lower net borrowing figures. However, analysis of treasury issuance data provides a clearer picture. The data confirms that the actual fresh borrowing (net borrowing) by the government is GH¢15.7 billion. This is because GH¢44.1 billion was used to either roll over or pay matured treasury bills issued.
Treasury Bills: A Necessary Tool?
Governments frequently enough use T-bills to manage short-term funding needs, such as addressing budget deficits or funding specific projects. According to onemoneyway.com, governments rely on treasury bills to meet short-term funding needs, such as covering budget deficits or financing specific projects and “The yield on T-bills is frequently enough used as a reference point for other short-term securities, influencing the cost of borrowing for businesses and consumers.” Ghana’s increased reliance on T-bills stems from its exclusion from international bond markets and restrictions on central bank financing under the IMF program.
This situation has forced the government to depend heavily on domestic revenue, particularly T-bills, to cover budget shortfalls. As a result, “for every GH¢4 that the government raised in treasury bills, GH¢3 was used to roll over old debt and GH¢1 as new debt to finance government operations.”
Budgetary Implications and Future Outlook
The GH¢15.7 billion in fresh borrowing was anticipated in the mini-budget approved by Parliament on January 3, 2025. However, the 2025 Expenditure in Advance of Appropriation projected a budget deficit of GH¢24.3 billion for the first quarter of 2025, with GH¢20.2 billion expected from the domestic market.
This suggests that the government may still need to borrow an additional GH¢5 billion to GH¢9 billion in the coming months to meet its expenditure needs. The sustainability of this approach hinges on several factors, including revenue mobilization, expenditure control, and the ability to access choice financing sources.
Debt Management Strategy and Interest Rates
The government has implemented a new debt management strategy that involves rejecting overpriced bids in the treasury market. This strategy has led to a decline in interest rates across all three treasury bill maturities.
- 91-day and 182-day bills auctioned on February 21 sold at lower rates then similar bills issued 91 and 182 days prior.
- The 364-day bills have seen a rapid fall in rates, from 30.15% to 27%.
The ability to sustain this downward trend in borrowing costs is crucial for reducing the debt service burden and freeing up resources for development. However, as treasury bills remain the government’s safest option for financing short-term needs, maintaining this trend will require careful management and strategic decision-making.
Ghana’s current economic landscape necessitates a balanced approach. While T-bills provide crucial short-term funding, the high proportion used to service old debt raises concerns about long-term sustainability. Efficient revenue mobilization, prudent expenditure management, and strategic debt restructuring are vital for securing Ghana’s financial future. Investors and citizens alike should closely monitor these developments and engage in informed discussions to ensure accountability and clarity.
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Does Ghana’s reliance on treasury bills, especially for debt rollover, pose a threat to long-term fiscal sustainability?
Ghana’s Treasury Bills: An Interview on Debt Sustainability and growth
Welcome, Dr. Abena Amoah, Senior Economist at the Institute for Fiscal Studies. We’re here today to discuss Ghana’s reliance on treasury bills and its implications for the country’s economic health.Thank you for joining us at Archyde.
It’s my pleasure to be here.
Let’s start with the basics. Ghana has been increasingly using treasury bills (T-bills) for short-term financing. Why is this the case?
Well, Ghana’s access to international bond markets has become limited, and there are restrictions on central bank financing due to the IMF program. this has forced the government to rely heavily on domestic revenue, with T-bills becoming a primary tool for covering budget shortfalls.
Recent reports suggest a notable portion of new T-bill issuances is used to service old debt. What are the implications of using new debt to pay off old debt?
Essentially, it creates a cycle of debt. While T-bills offer short-term relief, constantly rolling over debt can raise concerns about long-term sustainability. It can also crowd out other essential spending needs, such as infrastructure development or social programs.
We’ve seen figures suggesting that for every GH¢4 raised in T-bills, GH¢3 goes to rolling over old debt.Is this level enduring for the Ghanaian economy?
That ratio is definitely a cause for concern. While T-bills are useful for managing immediate funding gaps, such a high proportion dedicated to debt rollover signals a need for a more complete debt management strategy. We need to focus on efficient revenue mobilization and controlling expenditure to reduce reliance on continuously borrowing to repay old debts.
The government has reportedly implemented a new debt management strategy, rejecting overpriced bids in the treasury market. What impact could this have on interest rates and the overall debt burden?
Rejecting overpriced bids can indeed lead to a decline in interest rates, as we’ve already seen with recent T-bill auctions. Lower interest rates reduce the cost of borrowing, freeing up resources that would or else be used for debt servicing. However, maintaining this downward trend requires discipline and consistent implementation of sound economic policies.
The Expenditure in Advance of Appropriation projected a substantial budget deficit for the first quarter of 2025. How does this deficit impact Ghana’s reliance on treasury bills?
A large budget deficit necessitates borrowing to cover the shortfall. If international options are limited, the government will likely continue turning to the domestic market through T-bill issuances. This makes controlling expenditure and increasing revenue mobilization even more critical to reducing the need for further borrowing.
What specific measures do you believe Ghana should implement to reduce its reliance on T-bills and ensure long-term fiscal sustainability?
Ghana needs a multi-pronged approach. This includes strengthening revenue collection through improved tax administration and broadening the tax base. Additionally, the government needs to prioritize and streamline expenditure, eliminating wasteful spending. exploring options for debt restructuring and seeking concessional loans from international partners are important steps.
To wrap up, what’s the one thing you would like our readers to consider about Ghana’s current economic trajectory and its reliance on treasury bills? What questions should they be asking?
I think readers should be considering the long-term implications. Are we simply kicking the can down the road with this short-term financing strategy? A key question to ask is whether the government’s fiscal policies are creating a more sustainable economic future for ghanaians and the generations to come or simply postponing inevitable challenges? I implore the readers to engage in a constructive, informed conversation about Ghana’s debts and its economic policies impacting our economic future.
Dr. Abena Amoah,thank you for sharing your insights with us at Archyde. We appreciate your expertise on this critical issue.
Thank you for having me.
