IMF intervention breeds investor confidence as T-Bills oversubscribed by almost GHS 400m
The anticipated intervention of the IMF in Ghana’s current economic woes seems to be propping up investor confidence as bids made for government’s short term debt securities on Friday, July 8, was oversubscribed by GHS 393m.
Government’s target in the auction of the 91, 182 and 364 days Treasury Bills was some GHS 928m, however, the government at the end of the auction accepted bids amounting to GHS 1,321m – GHS 393m more than its original auction target.
The short term debt instruments were auctioned at interest rates of 25% (91 day), 26% (182 day) and 26% (364 day) respectively.
Government, for months now has been struggling to achieve its auction targets let alone exceed its target and that too by the margin it did last Friday.
For the past months, government’s inability to achieve auction targets for its short term debt securities has been for a number of reasons key of them being investors concerns (particularly non-resident investors) over the country’s rising debt stock and its ability to service it given the country’s revenue mobilisation challenges resulting in capital flight, unattractive interest rates on T-bills due to record high inflation rates and tightening of liquidity on the interbank market.
However, given the government’s recent request to the IMF for a bailout programme, investors seem to have some renewed confidence in the economy as they expect the IMF to help the country resolve its current economic challenges.
Already, negotiations between the government and the IMF have commenced with the government reported to be requesting for some $1.5bn in assistance from the Fund.
Upon the acceptance by the IMF to onboard Ghana on a Fund programme following the negotiations, Ghana is expected to regain access to the international capital markets further brewing investor confidence in the economy and possibly leading to a credit rating upgrade by Fitch Ratings, Moody’s and S&P’s in their next round of credit rating actions.
Meanwhile, erstwhile Minister for Finance, Seth Terkper, has noted that although the specific conditionalities to be imposed on the country will be known in the aftermath of the country’s negotiations with the Fund, there are some pertinent areas that are likely to come up in the negotiation talks between both parties.
These areas which the IMF is likely to consider and request the government to make some adjustments he noted, have already been pointed out in the Fund’s last Article IV assessment report on the Ghanaian economy.
Making reference to the Article IV report, the erstwhile Minister for Finance, noted the IMF is likely to impose some conditionalities in the area of the energy sector, the Central Bank’s financing of the budget deficit given that there could be a second round of the Bank of Ghana financing government’s deficit as was the case in 2020 during the peak of the pandemic.
The financing of the Free SHS – government’s biggest flagship programme – and its sustainability is also likely to be tabled as part of the broader discussions to take place between government and the IMF.
“The conditionalities to be imposed on Ghana will be known after government’s negotiations with the Fund, but given the Fund’s Article IV we can tell some of the issues that are likely to come up in government’s negotiation with the IMF.
“Issues that are likely to come up in the negotiations include the energy sector bailout costs where it can be a conditionality that government will be required to go back to comprehensive reporting of the sector, showing the deficit, arrears and debts in the sector, so that there is greater transparency.
“Another area could be the financing of the budget deficit by the BoG, and the Fund may want to know and discuss how long the government intends to use this approach.
“Then there is the Free SHS, if government cannot finance it with its own revenue and cannot also go to the market to borrow to finance it, will the government still be adamant in wanting to finance it to create more arrears or the government will now want to do a new version of it to minimize costs, seeing that compensation, interest payments and amortisation have crowded out all other expenditures,” he noted.
Also likely to suffer some conditionalities will be the allowance paid to nursing and teacher trainees by the government.
