Treasury exceeds H1 financing target, but demand for Treasury-Bills decline
In the first half of 2023, Ghana’s Treasury encountered hurdles as demand for Treasury-bills waned, while yields on these short-term securities continued their upward trajectory. The Treasury’s successful issuance of new debts and refinancing of maturing obligations highlighted investor confidence, but the recent decline in demand raises concerns about the country’s ability to meet its debt obligations going forward, amidst tightening liquidity conditions.
The Treasury’s frontloading strategy in the first half of the year, focused primarily on the money market, aimed to leverage limited investment options and cater to the higher demand for short-term securities. This approach proved fruitful as the Treasury surpassed its financing target by approximately GH¢12.39 billion, issuing a total of GH¢44.19 billion out of the GH¢47.30 billion tendered by investors. However, a concerning trend emerged as the demand for Treasury-bills dwindled for the second consecutive month, particularly in the 91- to 364-day maturity range.
The dwindling demand for Treasury-bills can be attributed to multiple factors. In the first quarter, attractive yield levels and market uncertainties drove investors to seek secure investment opportunities, resulting in a surge in demand for T-bills. However, this demand eased in the second quarter, potentially impacted by the lingering effects of the domestic debt exchange program, which dampened investor sentiment and diminished the appeal of Treasury-bills.
Notably, the Treasury managed to issue the tendered amount despite falling short of its target in May and June 2023. However, the Treasury must carefully assess the implications of this trend, as its ability to meet debt obligations heavily relies on investor demand for Treasury-bills. With the decline in demand and tightening liquidity conditions, the Treasury must adapt its debt management strategies and consider measures to stimulate investor interest.
Moreover, the sustained uptrend in yields on Treasury-bills poses additional challenges to Ghana’s debt sustainability. In Q1 2023, the Treasury successfully implemented cost-cutting measures, leading to a significant drop in yields. However, this momentum was short-lived, as yields resumed their upward trajectory in Q2. The consequent increase in borrowing costs adds strain to the government’s already burdened fiscal position, making it increasingly challenging to manage existing debt and fulfill future financial commitments.
Looking ahead, market expectations suggest that yields on Treasury-bills will continue to fluctuate in the near-term, with a potential for further increases. However, it is crucial to note that until inflation returns to a single-digit figure or drops below 20 percent, the real return on Treasury-bills will remain negative. With the current trend of rising yields persisting, Ghana’s government must reassess its debt management strategies and explore measures to address the mounting borrowing costs. Policies aimed at attracting investors, promoting fiscal discipline, and fostering economic growth will be essential in alleviating the strain on the country’s financial position.
As the Treasury navigates these challenges, close monitoring of market dynamics, including liquidity levels, investor sentiment, and the effectiveness of debt management measures, becomes imperative. By adopting a proactive and adaptive approach, Ghana can ensure the continued success of financing government operations while maintaining stability in the financial market.
