MPR decision to ease T-bill yield pressure

The Monetary Policy Committee’s (MPC) decision to hold the benchmark policy rate at 30 percent should provide temporary relief for government financing, with Treasury-bill yields expected to moderate in the interim say market watchers.

T-bill rates have been on the rise as government has had limited financing options. During the penultimate auction in September 2023, yields experienced a significant surge with the 182-day yield leading the way – surging by 129 basis points (bps) to reach 30.68 percent. Meanwhile, the 91-day yield climbed to 28.50 percent, marking a 38bps increase; and the 364-day yield reached 32.51 percent, representing a 34bps gain.

However, during a briefing at the recent MPC meeting’s conclusion last Monday, the Committee cited retreating inflationary pressure.

Databank stated in its commentary on the subject that: “The decision leaves the cumulative hikes for this year at 300bps. We expect the MPC decision to limit policy rate-induced pressures and squeeze the rise in T-bill yields”.

Last week, investors offered to buy a total of GH¢3.25billion worth of bonds even though the government offered GH¢2.59billion. In the end, the Treasury sold GH¢3.10billion worth of bonds, above its initial target.

Stated differently, for every bond they wanted to sell there were 1.05 buyers interested.

Overall, the results showed investors were willing to buy more bonds than government planned to sell.

Debt implications

In the latest economic report for September 2023, the Bank of Ghana revealed that public debt took a significant leap – increasing by approximately GH¢6.3billion during the second quarter of 2023. This substantial rise pushed the total debt to GH¢575.5billion, equivalent to around US$52.3billion. Notably, this amount represents a significant 71.9 percent of the gross domestic product.

The surge in public debt can largely be attributed to a slight weakening of the cedi against the US dollar during this period. This increase in debt highlights economic challenges faced by the nation, necessitating a careful examination of its fiscal policies and strategies.

According to the September 2023 economic report, the debt stood at GH¢473.2billion in December 2022 – making up roughly 77.5 percent of the nation’s GDP. Over the following months debt levels saw successive increases, reaching GH¢547.8billion by the end of January 2023. This trend continued, with the debt climbing to GH¢564.1billion in February and GH¢569.5billion in March 2023.

In April 2023, there was a minor decrease of debt levels, with the total falling to GH¢569.2billion. However, this dip was short-lived as the debt burden rebounded – reaching GH¢573.5billion in May 2023 and ultimately settling at GH¢575.5billion in June 2023.

Although these fluctuations in debt levels raise important questions about fiscal management and sustainability – prompting domestic and international observers to closely monitor the economic situation, the current IMF programme guarantees that the quantum of debt will not spiral out of control.

Breaking down the public debt, data from the central bank indicate that the external component reached GH¢328.6billion in June 2023 – surpassing the figure recorded in April 2023, which was GH¢321.3billion.

In contrast, the domestic debt stood at GH¢246.9billion at the end of June 2023; making up approximately 30.8 percent of the nation’s GDP. While this figure remains relatively stable, it underscores the importance of prudent debt management strategies as government navigates its fiscal challenges.

Despite the challenges posed by mounting debt, the nation has made progress in managing its fiscal deficit. Government’s fiscal deficit to GDP ratio improved to 1.3 percent in June 2023, a significant improvement from the 8.3 percent recorded in December 2022. Additionally, there was a 0.6 percent surplus of GDP in the primary balance for June 2023, indicating concerted efforts to stabilise the nation’s fiscal situation.

In December 2022, the country suspended loan payments to its external creditors amid economic difficulties. Subsequently, the country initiated the restructuring of some domestic debt starting in February 2023 through the debt-swap initiative – which is expected to conclude soon, aiming to alleviate the nation’s debt burden.

The country also remains in negotiations with its external creditors, with an agreement expected by end of the year to restructure its external debt. These efforts highlight commitment to restoring fiscal stability and ensuring sustainable economic growth.

The Treasury is set to offer a total GH¢2.57billion in Treasury-bills today – Friday, September 29 2023 – to refinance maturing bills worth GH¢2.41billion.