Treasury Bills: Government rejects bids worth billions over rising interest costs
Government’s rejection of all bids for the sale of Treasury bills from investors on March 3, 2023, has raised concerns about the country’s financial stability. According to sources, the government dismissed the offers because the 35% plus interest rates quoted by investors, mostly banks, were deemed too expensive.
The government’s target was to raise ¢2.78 billion from the T-bills to refinance maturing bills worth ¢2.55 billion, but it found the yields too high and opted to reject them. Reports indicate that the government wants yields of below 30%, which led to the rejection of all bids from the investors.
The decision to reject the bids comes amid concerns about rising interest costs on short-term securities, particularly as the government seeks to trim the cost of debt instruments in line with the Domestic Debt Exchange Programme. Analysts believe that the government is wary of the financial implications of excessive interest rates on the country’s debt, especially with the increasing need for government borrowing to finance infrastructure and development projects.
The interest cost on government Treasury bills for the last three months (December 2022, January 2023, and February 2023) was estimated at ¢4.416 billion. This cost is significant given that the government bought a total of ¢33.08 billion worth of T-bills in the last three months alone. The weighted average interest rate on these T-bills was 35%, meaning that the government will have to pay a whopping ¢4.42 billion in interest costs.
While the government has reopened the tender for the auction, which is expected to close by noon March 3, 2023, it remains to be seen how investors will respond given the government’s rejection of all the previous bids. The move has raised concerns about the stability of the country’s financial system, particularly in light of the increasing need for government borrowing to finance infrastructure and development projects.
Last week, the government accepted all bids tendered for the T-bills auction and raised ¢5.07 billion. The uptake exceeded the auction target of ¢2.89bn by 75.66% and almost doubled the refinancing obligation. However, analysts and market watchers expressed concerns about the rising interest costs, particularly given the government’s massive borrowing spree in recent months.
Executive Director of finance firm, Dalex, Joe Jackson tweeted his concerns, asking whether investors should be cautious in buying T-bills. Jackson pointed out that the government of Ghana bought ¢33.08 billion in T-bills in the last three months, with a weighted average interest rate of 35.62%, which will cost a whopping ¢4.42 billion in interest.
The government’s decision to reject all bids for the T-bills raises questions about its financial strategy and how it plans to manage its debt. It is unclear whether the government will adjust its borrowing strategy or maintain its current course, given the rising concerns about the financial implications of high interest rates on short-term securities.
The situation in Ghana is not unique, as other countries in the region are also grappling with rising debt and the need to balance short-term borrowing costs against the long-term impact on the economy. The government of Ghana will need to carefully consider its options and balance its short-term borrowing needs with the long-term implications on the country’s economic stability.
