With corporate Ghana anxiously awaiting an announcement from Bank of Ghana Governor, Dr Ernest Addison today on where the central bank wants interest rates to go over the next two months, government’s treasurers will be hoping for higher interest rates, despite its implications for public debt servicing costs. Over the past 21 weeks, government has only been able to raise GHc 17.49 billion through the issuance of cedi denominated treasury bonds and notes.
This is a slight decline on the amount raised during the same period in 2018, when GHc 17.78 billion was raised, this being GHc 0.29 billion more than what government raised on the domestic market this year. Of the total amount raised during the period, 91-day treasury bills comprised of 56.6 percent, 182-day bills 13.6 percent, one-year notes 12.3 percent, two-year notes, 7.1 percent, three-year bond at 2.2 percent and the five-year bond at 6.1 percent.
For the first and second quarters of 2019, government planned to issue domestic debt securities to the tune of gross amounts of GHc 11,250.00 million and GHc 12,100.00 million respectively, making up of a total of GHc 23,350.00 million. While the lower out turn has helped accelerate the ongoing fiscal consolidation process, the out turn has actually been the result of lower than expected appetite for government debt, especially medium to long term debt which is primarily subscribed by foreign portfolio investors. This has forced government to increase the yields it offers on its domestic debt securities to compensate foreign investors for the foreign exchange losses they have incurred due to the cedi’s depreciation which steepened significantly between the second quarter of 2018 and the middle of March this year.
Government is expected to increase borrowing this year to fund a higher fiscal deficit, targeted at 4.2 percent of Gross Domestic Product, up from 3.9 percent in 2018. This would enable the government to increase spending to ramp up infrastructure development and increase funding to flagship economic growth and social intervention programs, while at the same time providing a fiscal stimulus to accelerate economic growth to 7.6 percent of GDP this year, up from a disappointing – albeit sturdy – 5.6 percent in 2018.
Yield curve
Following an increase in the consumer inflation by 20 basis points (bps) to a 6-month high of 9.5 percent in April 2019, the short-end of the yield curve has recovered.
Government’s treasuries for last week, depicted the yield on the 91-day bill hardened by 5bps to 14.92 percent against 14.87 percent a week before, while that of the 182-day bill also rose by 12bps to 15.47 percent last week against 15.35 percent, a week before.
However, the yield on the one-year note softened by 2bps to 18.01 percent this week as against 18.03 percent last week. This suggests confidence by foreign investors that the cedi’s return to stability is sustainable for now, therefore reducing the need for a yield premium to compensate them for foreign exchange losses.
According to an analysis by Doobia however the recovery of the short-term yields was still not enough to allow the government to fully raise the targeted amount of GHc 889.00mn for last week. A total of just GHc 607.97 million was raised.
The Bank of Ghana’s Monetary Policy Committee is today scheduled to announce its benchmark Monetary Policy Rate for the next two months. Most analysts expect it to be maintained at 16 percent where it has been since late January this year following a 100 bps cut. However government’s failure to meet its domestic debt financing targets since the beginning of this year adds to the case being presented by proponents of a small increase in the MPR of between 50 and 100 bps. But with an eye on supporting faster economic growth, and with consumer price inflation within the target band of between six and ten percent and the cedi relatively stable for now, this is unlikely to be done
