Government domestic borrowing to rise further in second half of 2024

Government’s domestic market borrowing could reach the GH¢220 billion mark by close of the year, as it remains barred from the international market.

This is because financial services firm Databank has upped its projection for full-year government borrowing from GH¢180billion to GH¢220billion, a 22 percent increase from earlier forecasts.

This revised estimate comes as the nation grapples with high refinancing obligations and other pressing financial needs. With approximately GH¢115billion already raised in first-half of the year, government is expected to seek an additional GH¢105billion before year-end – translating to an estimated weekly borrowing requirement of GH¢4billion.

“Government’s aggressive borrowing strategy is primarily driven by the need to refinance maturing debt. We anticipate about GH¢90billion in maturities to be settled in second half-2024 alone, which accounts for weekly maturing bills of GH¢3.5billion,” Databank said in a report.

“Government’s high money market demand will be fuelled by an estimated coupon payment of over GH¢5.5billion, coupled with the cash needed to settle other government commitments,” it added.

This surge in government borrowing comes at a time when the nation is already battling high inflation and currency depreciation.

The country’s year-end inflation rate is projected to remain above 20 percent, significantly higher than the central bank’s target range.

Economists warn that such high levels of domestic borrowing could have far-reaching implications for the economy.

There are concerns that government’s substantial presence in the money market risks crowding out private sector borrowing and could keep interest rates elevated, despite modest improvements in the inflationary trend.

Heightened financing pressures continued to drive yields on Treasury bills higher last week. The 91-day bill rose by 3 basis points to 24.82 percent, while the 182-day bill surged by 2 basis points to 26.76 percent. The 364-day bill remained unchanged at 27.86 percent.

Compared to a target size of GH¢4.36billion, investors tendered an amount of GH¢3.8billion across the 91- to 364-day bills, reflecting a 13 percent auction shortfall. This adds to the tally of weekly undersubscriptions for a third consecutive week.

Uptake by the Treasury is however sufficient to pay off a sum maturing face value of GH¢3.37-billion due this week across all the bills. With a sum maturity size of GH¢6.17billion due across all bills next week, the Treasury intends to raise GH¢6.56billion across all bills to refinance its maturities.

The next auction is scheduled for Thursday, 9th August 2024. It is expected that the Treasury will miss its auction target, given that this will be the year’s largest target size amid thin GH¢ liquidity. Rates on T-bills are expected to rise as the Treasury accommodates higher bids to fill its huge funding needs.

Moreover, the increased borrowing may complicate Bank of Ghana efforts to control inflation. The central bank has maintained its policy rate at 29 percent for four consecutive meetings, reflecting the challenging economic environment.

As Ghana heads into an election year, concerns are mounting about the potential for spending-induced inflationary pressures. Government’s high borrowing needs add another layer of complexity to an already delicate economic situation.

The fiscal balancing act has become even more precarious. Government must somehow meet its financing needs without derailing the fragile economic recovery or further stoking inflation, market watchers have pointed out.