We need balance between borrowing and fiscal discipline

The government's recent decision to reject billions of Ghana Cedis in investor bids through Treasury bill auctions has sparked intense interest among market analysts, economists, and policymakers.

In its last auction, the government turned down GH₵2.36 billion out of GHc 4.05 billion bids tendered for the 91-day, 182-day, and 364-day bills. This move comes on the heels of an earlier auction where GH₵8.27 billion was rejected, one of the highest amounts since March 2023.

Treasury bills, or T-bills, are short-term government securities issued to finance public spending. They play a crucial role in government financing and influence interest rates across the economy.

Investors lend money to the government by buying T-bills, receiving their principal plus interest after a set period. This mechanism allows the government to raise funds for various public expenditures, such as infrastructure development, education, and health care.

The government's prudent approach to borrowing has significant implications for the economy. By rejecting high bids, the government can manage interest rates, reduce debt costs, and create space for private-sector financing.

This approach also sends a positive signal to investors and rating agencies, indicating the government's commitment to fiscal discipline and sustainable borrowing practices.

For us at the Graphic Business, the government's decision to reject bids also raises concerns about the potential impact on liquidity in the market.

With investor interest waning and yields declining, the government faces a critical juncture in managing short-term borrowing. 

It is the view of the paper that the ability to strike the right balance between cost and participation will be essential to keep the treasury market stable and functional.

In the context of Ghana's ongoing IMF programme and the broader push for fiscal consolidation, the government must navigate a delicate balancing act.

On one hand, the government must maintain borrowing discipline to meet its fiscal targets and ensure macroeconomic stability. On the other hand, the government must also meet urgent expenditure needs, such as paying salaries, and pensions, and financing critical infrastructure projects.

Looking ahead, a balanced approach that accommodates market-driven pricing while protecting the state from unsustainable borrowing costs will be necessary. 

This, for us at Graphic Business may involve adjusting auction strategies, increasing transparency, and engaging with investors to restore market confidence.

The government may also need to explore alternative funding sources, such as foreign investors or domestic capital markets, to reduce reliance on short-term debt instruments.

In the long term, structural reforms to strengthen the economy, enhance debt sustainability and deepen capital markets will be crucial.

This may involve implementing policies to improve revenue mobilisation, reduce fiscal vulnerabilities, and promote private sector development.

Investors can expect a stable but cautious approach, with confidence building in improved economic indicators. However, they should remain vigilant, as external factors could influence market conditions.

The declining yield trend underscores strong liquidity and investor confidence in the government’s securities. Strategic bid rejections have helped manage interest rates, reduce debt costs, and create space for private-sector financing.

The government's ability to sustain fiscal discipline and implement prudent policies will determine the long-term trajectory of borrowing costs and market stability.

Ultimately, the government's prudent approach to borrowing is a step in the right direction. By prioritising fiscal discipline and sustainable borrowing practices, the government can ensure macroeconomic stability, promote investor confidence, and create a favourable business environment.

As Ghana continues on its path towards economic growth and development, the government's ability to manage its debt wisely will be critical to achieving its long-term goals.