Investor confidence weakens without fiscal discipline — Analyst

By Samuella Antwi

Economic Analyst Emmanuel Boateng has cautioned that without fiscal discipline and a stable macroeconomic environment, investor confidence in government securities such as Treasury bills will remain fragile.

Speaking on the Business Breakfast Show on Zed, Mr Boateng explained that investors consider more than just headline yields when making decisions.

“For every investor, we are not just looking at the yield. Otherwise, there are some Ponzi schemes out there which are giving better yield. Everybody can run and go and invest in them. Attractive nominal yields don’t guarantee real returns,” he stated.

According to Mr Boateng, inflation expectations, foreign exchange stability, and policy credibility are key indicators investors examine before committing funds.

He noted that if inflation outpaces returns, the incentive to hold government securities diminishes.

“If your inflation is higher than the interest that investors are gaining on a particular financial instrument, then the real return is actually negative or near zero. There is no point. It’s better for you to use that money today, buy a real asset, and let it generate income for you than to keep it in an instrument that won’t cover or hedge against the spike in inflation,” the economic analyst stressed.

Mr Boateng further warned that fiscal indiscipline and repeated shortfalls in government financing targets erode market confidence.

He argued that when investors perceive slippages in expenditure management, they tend to hoard cash or turn to foreign currencies like the dollar as a safer store of value.

“Market participants suspect that if government spending is not going as it should, they would prefer to hold their money in their pocket, under their pillow, or even in a shoebox, than to invest. Others would rather buy dollars and keep them.

“This weakens the performance of the cedi and creates an incentive for some to even pray for the cedi to suffer because of their investments in dollars,” Mr Boateng observed.

While acknowledging that government recently raised GHS6.25 billion from the domestic market, he said persistent borrowing shortfalls remain a worrying trend.

“A one-off shortfall is manageable. But persistence and attrition are riskier. Even if the financing gap is bridgeable, repeated missed targets can erode market confidence. Credibility and signalling effects are key issues to investors,” the economic analyst cautioned.

He also pointed out that investors have a wide range of alternatives, including pension funds, mutual funds, and bank investment products, which sometimes offer more competitive returns than Treasury bills. “Our assumption is that every investor is rational. They will choose the financial instrument that optimises their income. What we need from the government is a stable macroeconomic environment and interest rates on T-bills that offer better than what inflation would do to that income earned from the T-bill market,” Mr Boateng added.