- Falling Rates Could Push Billions from Ghana’s Treasury Market into Corporate Debt and Productive Assets
Ghana’s declining interest-rate environment could trigger one of the most important reallocations of domestic capital in years, as pension funds, insurers, asset managers and other investors begin to look beyond short-term government securities for higher risk-adjusted returns.
For much of the recent period, the investment calculation was relatively simple. Government securities offered unusually high nominal returns, often making it difficult for corporate borrowers to compete for capital without paying prohibitively expensive yields.
Amo Agyapong, Chief Policy Officer of the Institute of Chartered Development Finance Analysts, argues that this could release capital that has been concentrated in sovereign debt and redirect it towards corporate bonds, infrastructure, housing, energy, agriculture and other productive assets.
“Falling interest rates can fundamentally change the economics of investment. When the cost of money declines, capital that was previously sitting on the sidelines can begin to move into productive assets,” Mr Agyapong said.
The significance of the shift lies not merely in cheaper credit, but in the opportunity cost confronting investors.
When government can offer high returns on short-duration securities, pension funds and other institutional investors have little reason to accept the additional credit, liquidity and governance risks associated with lending to private companies. But as Treasury yields decline, that trade becomes less compelling.
Pension funds must meet long-term liabilities. Insurers must match assets against future claims. Fund managers must generate performance for clients. Lower sovereign yields therefore create pressure to search elsewhere.
That could prove particularly important for Ghana’s corporate debt market, which remains relatively shallow compared with the size of the banking system and the pool of long-term savings available in the economy.
“Ghana cannot rely exclusively on the banking sector to finance economic transformation. We need a capital market capable of mobilising long-term domestic savings and directing those resources towards productive investment,” Mr Agyapong said.
The argument goes to the heart of one of Ghana’s structural financing problems.
Banks are critical to the economy, but their balance sheets are not always best suited to financing projects with long payback periods.
Factories, large housing developments, energy infrastructure and major logistics projects can require capital for 10, 15 or 20 years. Bank deposits, by contrast, are often considerably shorter term.
Corporate bonds can give companies access to longer-term funding. Infrastructure bonds can match institutional savings with projects that generate predictable cash flows. Municipal and green bonds can potentially widen the range of assets available to investors while financing public or climate-related investment.
“These instruments can help connect long-term domestic savings to long-term national development needs,” Mr Agyapong said.
That opportunity has become more important following Ghana’s domestic debt restructuring. The restructuring changed investors’ relationship with sovereign debt and reinforced the danger of assuming that government securities are entirely risk-free. Now a lower-rate environment could produce a second structural change: reducing the dominance of Treasury instruments in investment portfolios.
A larger pool of capital flowing to private companies could support factory expansion, working capital, infrastructure and employment. It could also create greater competition with banks for stronger borrowers, potentially broadening the options available to businesses seeking financing.
Lower Treasury yields do not automatically create a functioning corporate bond market. Investors moving away from government paper will not simply buy any security offering a higher coupon.
That means companies with transparent financial statements, strong governance, predictable cash flows, competent boards and a demonstrated ability to service debt.
“Lower interest rates do not eliminate investment risk. Investors will continue to demand credible financial statements, strong governance and a clear capacity to service debt,” Mr Agyapong said.
Ghana can lower policy rates and Treasury yields, but it cannot manufacture investment-grade corporate borrowers overnight.
The success of the transition will therefore depend partly on whether enough companies can meet the disclosure, governance and credit-quality standards required by institutional investors.
Without that pipeline, pension funds and insurers may simply shift into other sovereign instruments or remain concentrated in familiar asset classes rather than financing productive enterprise.
When high Treasury yields fall quickly, investors can become overly aggressive in searching for replacement returns.
That search for yield can encourage money to move into securities whose risks are poorly understood.
Mr Agyapong cautioned that the old investment playbook would need to change.
“An environment of declining rates requires investors to think differently. The question is no longer simply where the highest yield is, but whether the return adequately compensates for the risk being taken,” he said.
That shift demands greater sophistication from fund managers and trustees. A corporate bond yielding more than a Treasury bill may look attractive, but the additional return exists for a reason.
Credit risk, liquidity risk, project risk and governance risk all need to be priced properly.
The development of Ghana’s debt market therefore depends as much on stronger analytical capacity among investors as on the creation of new instruments.
The government is the immediate beneficiary of falling rates. Lower Treasury yields reduce the marginal cost of domestic borrowing and could gradually lower the cost of refinancing maturing obligations.
“When interest rates fall sustainably, the government has an opportunity to refinance existing obligations at lower costs and potentially create more fiscal space. But this benefit will only be durable if the underlying fiscal fundamentals continue to improve,” Mr Agyapong said.
Lower rates built on improving inflation expectations, stronger fiscal discipline and exchange-rate stability can reinforce recovery.
But if government borrowing rises sharply again, inflation reaccelerates or the cedi comes under sustained pressure, investors could quickly demand higher yields.
If lower borrowing costs are interpreted as permission to expand deficits aggressively, government could once again absorb the liquidity that might otherwise flow to the private sector. The very conditions that make corporate debt more attractive could then disappear.
Declining government yields do not necessarily mean bank lending rates will fall at the same pace. Commercial banks still have to price operating costs, capital requirements and borrower-specific credit risk into loans.
That means Ghana could experience a period in which Treasury rates fall significantly while many businesses continue to face expensive bank credit. In that environment, the capital market becomes even more important. Companies capable of issuing bonds may be able to bypass part of the traditional bank intermediation process and raise money directly from investors.
But that route will initially be available mainly to stronger and larger businesses. Small and medium-sized enterprises will still face significant financing constraints unless structures are developed to aggregate risk, provide guarantees or create specialised funds.
The larger policy question is therefore whether Ghana can convert what may be a cyclical decline in rates into structural reform of the financial system.
“The capital market needs predictability. Investors can tolerate risk, but they struggle with uncertainty. Sustaining macroeconomic stability is therefore fundamental to unlocking the full potential of Ghana’s debt markets,” Mr Agyapong said.
Predictability matters because long-term investors make decisions on the assumption that the economic environment will remain reasonably stable over several years. Investors will
