T-Bill financing of Ghanaian economy and high-interest rates happening as expected – IMF says
IMF Mission Chief to Ghana, Stephane Roudet, has said the IMF is not surprised that the Government has become heavily dependent on Treasury Bills as its main source of financing for its programmes.
Speaking to journalists on the sidelines of the IMF/World Bank April Spring Meetings, Mr Roudet averred that given the country’s loss of access to the international capital markets and also having already restructured its medium and long-term debt, it was evident that the Government will rely on short-term debt instruments.
“There was never any expectation that things would unfold differently when it comes to the financing picture for the government. The government has lost access to international capital markets. It was never expected that this access would be regained anytime soon. Of course, it will be regained in time, but the programme has to be implemented, and the debt restructuring has to be completed.
“There are lots of things that have to fall in place, gradually moving in the right direction. In the meantime, 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 the government would finance itself mainly on the short end of the market and so there is no surprise there,” he quipped.
“The expectation going forward is that because inflation is going to continue to go down and it will create space for the central bank to reduce interest rates, it will then mean that the government will be able to borrow at lower interest rates going forward.
“At the same time, the government is adjusting its budgetary position, which means that the total amount of financing that it needs to raise in the domestic markets is gradually going down and this is easing pressures on interest rates as well. So right now, everything is going in the right direction as expected under the programme,” he added.
Further touching on the prevailing high-interest rates in the country, Mr Roudet posited that Ghana’s interest rates are predominantly influenced by domestic factors, particularly inflation and monetary policy rate.
Headline inflation for March 2024 stood at 25.8% with the Central Bank’s monetary policy rate currently pegged at 29%.
The average lending rate to businesses in Ghana stands at 32.77%.
“Interest rates in Ghana are mainly driven by domestic factors, not so much by the global environment, in particular by the level of inflation and monetary policy in the country. We are very proud and very happy to see that inflation has come down very significantly since the beginning of the programme. We started at 55% and we are now at 25%. And we continue to foresee a further decline in inflation going forward.
“Now, of course, when inflation is at 20% or 25%, the central bank has to maintain its own policy rate at a high level and that drives interest rates in the whole economy at that level, but if you think about it in real terms, meaning the interest rate minus inflation, you know, the real interest rate is not really so high in a way,” he remarked.
According to Mr Roudet, the IMF expects inflation to continue decreasing, providing room for the Bank of Ghana to lower interest rates.
“I would add that you have seen that there is a decline in inflation which has created room and space for the Central Bank of Ghana, to reduce its interest rates. And so if we continue to see that declining inflation going forward, which is what we expect to happen under the programme given the policies that are being implemented in the country, then that will create further space down the road to reduce interest rate and this is how the programme is built.
“This is what is assumed under the programme and for those who had doubts at the beginning of the programme, they have seen that actually, the way things have unfolded in terms of inflation and in terms of interest rates and this is actually what we were expecting to happen under the programme. So that’s quite comforting that in a way the programme is working from that standpoint,” he quipped.
