Continuous oversubscription of T-Bill at high rates could lead to another debt exchange programme – Joe Jackson warns
Director of Business Operations at Dalex Finance, Joe Jackson, has cautioned both the Government and investors regarding the potential repercussions of escalating interest rates on the nation’s treasury bills. Mr Jackson contends that these soaring rates could imperil the government’s pursuit of sustainable debt levels, thus demanding immediate attention.
Last week, the government witnessed an unexpected surge in demand for its Treasury bills, surpassing its auction target with an oversubscription of 13.21 percent, breaching the intended GHS 2.60 billion mark. Concurrently, interest rates within the domestic money market continued their upward trajectory, leading to the 364-day bill fetching a bidding rate of 31.97 percent.
Despite these elevated interest rates presenting an enticing prospect for investors, Mr Jackson underscores that the high interest rates might eventually exact a toll on the government’s finances once these bills mature.
Speaking in an interview Citi Business News, he expressed deep reservations concerning the trajectory on the money market stating, “How can we after taking such bold steps to reduce domestic debt to bring our debt levels to sustainable levels be now piling up short term debt- 91 Day Bill at 27% and 182 Day Bill at 28% and 364 at 31%. This does not just make sense especially when the bids are oversubscribed,” he quizzed.
“Why can’t government reject the bids and ask investors to resubmit at lower bids like it did in March. We should be querying the government for borrowing at these high rates and query the investors for also lending at these higher rates because this will lead to the same problems that led us to a debt exchange programme,” he warned.
Mr Jackson advocates that the government should consider rejecting these high bids and encourage investors to resubmit their offers at more reasonable rates, mirroring a similar move made in March. He further emphasizes the need to scrutinize both government borrowing at these exorbitant rates and the investors for extending funds at such elevated levels, warning of a potential recurrence of the debt-related challenges that prompted the domestic debt exchange program.
Against a backdrop of unfavorable credit ratings and escalating debt levels, Ghana currently faces restrictions in accessing international capital markets for much-needed funds. This situation underscores the critical importance of prudent domestic debt management and vigilance in managing borrowing costs for the nation’s fiscal sustainability.
