Govt faces funding challenge — Treasury bill auctions underperform
The government is faced with difficulties raising funds on the domestic market, as it misses its treasury bill target for the fifth consecutive week, sparking concerns over waning local investor confidence in the economy.
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For the tender held on July 12, the government missed its target of GH¢4.72 billion by raising GH¢4.4 billion. For the auction held on July 19, the government again missed its target of GH¢5.3 billion by raising GH¢3.87 billion.
The situation was no different for the auction held on July 26, as the government raised GH¢4.06 billion against a target of GH¢4.77 billion. For the auction held on August 2, the targeted amount fell short by over GH¢560 million as the government raised GH¢3.80 billion against a target of GH¢4.36 billion.
In the previous auction week on August 9, the government again missed its target of GH¢6.55 billion when it raised only GH¢5.30 billion, a shortfall of over GH¢1 million.
The situation is particularly concerning as Ghana currently faces limited funding options. With international capital markets closed to the country and the local bond market recovering from the recent domestic debt restructuring, the treasury bill market remains the government's primary source of short-term capital to finance its budget deficit.
The lack of interest in the last five weeks raises fresh concerns for the economy, which is faced with one of its most difficult moments in history.
If this trend continues, market watchers are concerned it could pose significant challenges for the government in meeting its financial obligations, especially with the next coupon payment for local bondholders due in a few days.
Over targeting
A Capital Market Analyst, who spoke to the Graphic Business on the condition of anonymity, said the undersubscription was due to the government overtargeting more than the market appetite and not a situation of waning local investor confidence.
He said with the coupon rate for the new DDEP bonds due soon, the government is trying to build up liquidity towards repayment and has, therefore, been setting high targets for its treasury bill auctions.
“February and August are coupon payment periods. In the lead-up to these periods, you realise that the target sizes for the T-bill auctions are typically larger than the government’s financing obligation for the respective weeks.
“This is because the government tries to build liquidity buffers to honour the coupon obligations. So if you notice, in the last five weeks, you have targets significantly above GH¢4 billion, and if you notice the trend, you realise the market demand is just around GH¢4 billion,” he stated.
He added that “anytime you see significantly higher targets above GH¢4 billion, there is likely to be a shortfall.”
He said not much has changed about the demand. Instead, what has changed is the target, which is a bit higher.
For the next auction, the government is targeting GH¢4.96 billion from the 91-day, 182-day and 364-day T-bills.
The market analyst said there is every chance that there could be undersubscription again, considering that the target was above GH¢4 billion.
Stagnant interest rates
He said another reason for the low demand could be the interest rates on the bills, which have been stagnant since the beginning of the year.
For the previous auction, the interest rates for the 91-day, 182-day and 364-day T-bills were 24.8%, 26.7% and 27.8% respectively.
“Interest rates have been fairly stagnant in recent times. If we want to get so much from the market, we must be willing to concede some yields. However, the government is not looking at that as an option.
“And this could be part of why it is unable to attract the market to do much more than they are currently doing,” he said.
Other funding options
Also speaking in an interview with the Graphic Business, the Director at the Institute of Social, Statistical and Economic Research (ISSER), Professor Peter Quartey, said fortunately for the government, the IMF deal and the debt restructuring exercise have led to some relief and unlocked other financing options for the government.
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He said the undersubscription of the T-bill would, therefore, not have any significant impact on the economy.
“In any way, we even need to strike a good balance as we continue to borrow on the T-bill market, in order not to crowd out the private sector.
“So if individuals and banks are not buying a lot of T-bills and will rather lend to the real sector, then that is even better,” he said.
Ghana has been facing significant economic challenges recently. In 2022, the country experienced its worst economic crisis in decades, with inflation soaring to over 50% and the cedi losing more than 50% of its value against the dollar. This led to Ghana seeking a $3 billion bailout from the International Monetary Fund (IMF) in December 2022.
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As part of the conditions for the IMF bailout, Ghana had to undergo a domestic debt restructuring programme. This has likely affected investor confidence in government securities, including treasury bills.