T-Bill rates hit 8-month high — 91-day bill reaches 26.56%

Interest rates on government’s short-term securities (treasury bills) have surged to their highest level in eight months, as the 91-day bill yield climbed to 26.56% in November's latest auction, signalling renewed pressure on the country’s short-term borrowing costs. 

The current rate is the highest since March 18 when the yield on the 91-day bill stood at 26.49%. The yields for the 182-day and 364-day bills also currently stands at 27.58% and 29.03% respectively. 

Ghana's treasury bill rates have experienced significant volatility over the past decade, reflecting the country's economic challenges and policy responses. In 2022, the rates saw a dramatic surge, reaching unprecedented levels above 35% as the country grappled with a severe economic crisis marked by currency depreciation and soaring inflation. 

This crisis ultimately led to Ghana defaulting on most of its external debt obligations and seeking IMF assistance.

Pre-2020, rates were relatively stable, averaging around 14-16% but between 2020 to 2022, COVID-19 impact pushed rates higher as government borrowing increased.

The rates started moderating in 2023 following the IMF programme announcement, dropping to 19%. It, however, started to pick up again, increasing to 29% at the end of 2023. 

The start of 2024 saw the rates moderating again, dropping to around 24% in July before beginning to tick up again.

The spike in T-bill rates comes as Ghana continues to navigate through its economic recovery programme, following the $3 billion International Monetary Fund (IMF) bailout secured earlier this year. 

Implications 

A Market analyst told the Graphic Business that the rising yields suggest growing investor caution and could indicate persistent inflationary pressures in the economy, despite recent stability measures.

For the government, the higher rates mean increased domestic borrowing costs at a time when the country is working to restructure its debt and restore fiscal sustainability. 

This development could potentially impact the government's debt servicing obligations and its broader economic reform agenda.

The analyst said the elevated rates, while concerning for public finances, also presented an attractive investment opportunity for domestic investors seeking high-yielding, government-backed securities. 

He said this could, however, lead to a crowding-out effect, potentially reducing available credit for private-sector borrowing and investment.

“The upward trend in T-bill rates might influence other benchmark interest rates in the economy, potentially affecting commercial lending rates and the cost of credit for businesses and individuals.” 

“This could have broader implications for economic growth and private sector development in Ghana,” he stated.

Reliance on T-bill market 

With the international capital market still closed to the country and the local bond market also still dormant post DDEP, the T-bill market is now the only source for the government to raise money.

The analyst pointed out that the government’s reliance on the T bill market posed some risks to the country’s debt restructuring efforts.

He said the continuous reliance on the treasury bill market to raise short-term money to finance government operations could defeat the purpose of the debt restructuring programme, which is aimed at extending the country’s yield and reducing interest rates.

“This could impede the government’s agenda to prolong the yield curve and bring down borrowing costs,” he noted.

IMF concerns 

The IMF has however indicated that it did not have a problem with the cost at which the government was financing itself on the T bill market.

At a press briefing in Accra in August 2023 when the interest on the 91-day bill was 26%, the IMF Mission Chief to Ghana, Stephane Roudet, said the rates were consistent with its expectations in achieving debt sustainability over the medium term.

He said the cost at which the government was financing itself was of no concern to the IMF, adding that the fund was not surprised as the current treasury bill rates were anticipated under the programme.

Under the IMF programme, debt-to-GDP ratio is expected to reduce to 55 per cent of GDP over the next three years.

Debt restructuring 

As part of the country’s three-year programme with the IMF, the government has embarked on an exercise to restructure both the country’s domestic and external debts.

The first round of the DDEP saw the government swap a total of GH¢82 billion of old bonds for 12 new ones at a reduced coupon rate and longer tenors. The second round saw the government restructure cocoa bills of about GH¢7.93 billion and local dollar-denominated bonds of US$809 million.

The government has also formalised its agreement with the official bilateral creditor committee to restructure bilateral debts of $5.1 billion.

Quite recently, the government’s exchange offer to restructure Eurobonds worth $13.1 billion received an overwhelming 98% participation from investors in a deal that will see them take a 37% haircut in their investments.

The government is also currently engaging with external private banks and contractors whom it owes about $2.8 billion for a possible restructuring.