Ghana’s Treasury Bill shortfalls: A concern for the economy
By Prof. Samuel Lartey
Introduction
ON November 29, 2024, Ghana’s government fell short of its Treasury bill auction target, raising GH¢3.83 billion instead of the expected GH¢6.09 billion.
This GH¢2.26 billion shortfall marks the third undersubscription in eight weeks and highlights growing challenges in attracting investor confidence despite rising yields on government securities.
The repeated shortfalls raise critical questions about the health of Ghana’s economy, the stability of its financial markets, and the government’s ability to secure much-needed funds to support development and improve livelihoods.
A Troubling Trend Amid Rising Yields
Ghana’s Treasury bills once enjoyed strong investor support, evidenced by five consecutive oversubscriptions earlier in the year. However, a shift in sentiment has seen three shortfalls in two months, even as yields rise significantly.
The 91-day bill now offers 27.36%, the 182-day bill stands at 28.09%, and the 364-day bill has climbed to 29.87%.
Despite these attractive returns, investor participation has dwindled. The most recent auction saw the 91-day bill raise GH¢2.94 billion, while the 182-day and 364-day bills brought in GH¢669 million and GH¢216 million, respectively.
These figures indicate that investors are gravitating towards short-term securities, reflecting uncertainty about Ghana’s fiscal outlook.
Implications for the Economy and Financial Markets
- Eroding Investor Confidence
The consistent undersubscriptions suggest growing unease among investors about Ghana’s fiscal health. With public debt at GH¢575.7 billion (71.9% of GDP) and inflation at 40.1% in October 2024, the government faces mounting fiscal pressures.
Investors are demanding higher yields to offset perceived risks, driving up borrowing costs and putting additional strain on the government’s budget. This erosion of confidence could spill over into other sectors, further limiting the country’s ability to attract both domestic and foreign investment.
- Stifled Business Growth
Rising yields on government securities often lead to higher interest rates on loans, making credit more expensive for businesses. Small and medium-sized enterprises (SMEs), which form the backbone of Ghana’s economy, are particularly vulnerable. With limited access to affordable financing, their growth and contribution to job creation are hindered.
- Reduced Government Spending Power
The Treasury bill shortfalls deprive the government of critical funds needed to finance infrastructure, healthcare, education, and other essential services. For instance, initiatives like the Free Senior High School policy and the National Health Insurance Scheme could face funding constraints, directly impacting the lives of ordinary Ghanaians.
Why the Shortfalls Matter
Ghana’s reliance on Treasury bills to finance its budget deficit is a cornerstone of its fiscal strategy. A projected budget deficit of 9.3% of GDP for 2024 underscores the importance of these auctions.
However, repeated shortfalls deny the government the revenue it needs to address pressing issues, from maintaining public sector wages to supporting economic recovery.
The current environment also raises concerns about external borrowing. With the cedi depreciating by 22% against the US dollar in 2024, the cost of servicing foreign debt continues to rise, further constraining the government’s fiscal space.
What Needs to Change
To address these challenges, Ghana’s policymakers must act decisively to restore confidence and stabilise the economy. Key steps include:
• Improving Fiscal Discipline:
Reducing wasteful spending and enhancing revenue collection will help alleviate the pressure on public finances.
• Diversifying the Economy:
Investing in sectors like agriculture, renewable energy, and technology can create alternative revenue streams and reduce reliance on borrowing.
• Engaging Investors:
Transparent communication about fiscal policies and targeted incentives, such as tax breaks, can help rebuild trust.
• Monetary Policy Coordination:
Stabilising inflation and the cedi’s exchange rate will create a more favorable environment for investment.
Conclusion
The Treasury bill shortfalls are not just a temporary setback, they are a signal of deeper economic vulnerabilities.
If left unaddressed, these challenges could undermine Ghana’s financial stability, restrict economic growth, and erode the livelihoods of millions of its citizens.
To chart a path toward recovery, Ghana’s leaders must prioritise fiscal responsibility, innovative policies, and proactive investor engagement. Only then can the country secure the resources it needs to drive growth and ensure a stable future for its people.
Prof. Samuel Lartey
sammylaatey@yahoo.com
