Debt Management Director at Finance Ministry talks impact of debt restructuring on T-Bill rates

Debt Management Director at Finance Ministry talks impact of debt restructuring on T-Bill rates

Samuel Arkhurst, Director of Treasury and Debt Management Division at the Finance Ministry, speaking at the inaugural Quarterly Economic Roundtable event organized by the Ministry of Finance and the University of Ghana on Tuesday, July 2, 2024, provided an in-depth analysis of Ghana’s debt situation and the effects of recent debt restructuring efforts.

Mr Arkhurst noted that the aggregate interest rate on central government debt was 19% pre-domestic debt restructuring programme which translated to a total of 21% when other factors were considered.

This meant that 21% of the country’s revenue would be used annually for debt servicing. However, the debt restructuring brought this figure down significantly to 9.1%, representing a considerable reduction in the debt servicing burden.

He illustrated this with an example, explaining that over a ten-year period, the cumulative interest payment would have equaled 100% of GDP if the interest rate had remained at 20%. By reducing the interest rate to 9.1%, the country has alleviated a substantial portion of this financial pressure.

Mr Arkhurst further highlighted that the bonds issued as part of the debt restructuring are long-term, typically spanning 20 years, and noted that interest payments are recalculated every five years, hence the reduction from 20% to 9.1% effectively halves the interest burden over a five-year period.

He, however, noted that the unintended consequence of Ghana’s frozen access to international capital markets eliminated the possibility of issuing Eurobonds, which previously brought in nearly $3 billion annually.

Additionally, the domestic bond market is similarly constrained, with a significant portion of the bonds being rendered illiquid. Consequently, the government is now reliant on treasury bills, which are short-term, discounted instruments, as opposed to long-term bonds.

Mr Arkhurst further explained that the current high interest rates on treasury bills which are the 91-day, 182-day and 364-day bills are temporary and will reset every three months based on market conditions, asserting that the short-term nature of T-Bills contrasts with the stability of bonds.

He, however, assured that as inflation stabilizes, the interest rate regime will adjust downward, emphasizing that investors should view the current high rates as a short-term phenomenon and remain confident in the long-term stability and recalibration of Ghana’s debt instruments.

The Quarterly Economic Roundtable, themed “Restoring Macroeconomic Stability,” brought together distinguished panelists from government, academia, and civil society to discuss critical issues such as debt, fiscal, and monetary policies, with a focus on strategies to stabilize the cedi and ensure sustainable economic growth.