Prof Lord Mensah warns Government may resort to T-Bill refinancing amid sustained demand
Senior Lecturer of Finance at the University of Ghana Business School (UGBS), Professor Lord Mensah, has said the Government is likely to be forced to refinance existing T-Bills with proceeds from subsequent issuances of the short-term debt instruments.
Professor Lord Mensah quipped that the Government refinancing T-Bills with subsequent issuances of T-Bills will occur if the demand for the debt instruments by the Government continues unabated.
“If the demand for T-Bills continues, then the Government will be refinancing T-Bills with T-Bills,” he quipped.
“And for some time now if you watch, the Government has been making T-Bill issuances that are bigger than the previous week’s issue,” he added.
Prof Mensah made the assertion speaking as a panelist on the NorvanReports and Economic Governance Platform (EGP) X Space Discussion on Sunday, April 28, on the topic, “Are Government T-Bills and Bonds Risk-Free?”.
Several economic experts in the country have cautioned the Government against its reliance on T-Bills as its main source of financing for its programmes.
The experts argue that the interest rates at which T-Bills are issued are extremely high as the high-interest rates increase the Government’s cost of financing the debt instruments thereby potentially increasing its debt stock and further undermining the Government’s own debt reduction objective under the IMF programme.
According to Prof Mensah, the high interest rates on the T-Bills can trigger a default on T-Bills by the Government.
But regarding the reliance on the T-Bills, IMF Mission Chief to Ghana, Stephane Roudet, has explained that, given the fact that the Government had restructured its medium and long-term debt, it was then expected that the Government would rely on Treasury Bills as its main source of financing.
“It was clear that especially having restructured medium and long-term debt, that would mean that access to domestic markets would be mainly on the short-term segments. The expectation was that it would finance itself on the short end of the market at interest rates that already would be close to the policy rate,” he remarked.
Speaking further during the X Space Discussion, Prof Mensah posited that T-Bills are not as ‘risk-free’ as investors have been made to believe as there are several risks such as default risk, interest rate risk, inflation risk, liquidity risks among others that the short-term debt instruments are exposed to.
Further asserting, that recent defaults by Governments around the world with regard to the redemption of their short-term debt instruments (T-Bills) and bonds, further undermine the supposed ‘risk-free’ nature of Government T-Bills and bonds.
“Globally, the trend now is that Governments are defaulting on their bonds and short-term debt instruments, examples are Jamaica and Argentina. So if you look at it, it is not risk-free anymore,” he quipped.
Meanwhile, the Government has earmarked some GHS 55.9bn as interest payments on domestic loans which are mainly treasury bills.
The Government is seeking to borrow GHS 94.4 billion via treasury bills in 2024 to finance its expenditure.
This amount includes a GHS 31.8 billion buffer for T-Bill auction shortfalls.
Analysts believe the government will continue the excess uptakes of T-Bills auction which began late last year and into this year to build the target buffer.
