Ghana’s Treasury Bill Yields: Artificial Decline or Economic Progress?

Sharp Drop in T-Bill Rates Raises Concerns

Ghana’s treasury bill yields have experienced a significant decline since the beginning of the year. The yield on the 91-day bill has dropped sharply by 12.55% to 15.86%, while the 182-day bill has fallen to 16.93%, representing a 12.04 percentage point decrease.

Government Celebrates, But Experts Remain Skeptical

Finance Minister Dr. Cassiel Ato Forson has touted this decline as a major achievement, stating on social media: “In Just 50 days under President Mahama’s leadership, treasury bill rates have seen a historic decline.” However, the Institute of Public Policy and Accountability warns against premature celebration, citing several concerns about the economic implications.

Key Concerns About the Declining T-Bill Yields

1. Mismatch with Monetary Policy: The rapid fall in T-bill rates doesn’t align with the Bank of Ghana’s monetary policy rate and current average lending rates around 30%. Experts suggest this artificial decline may not reflect genuine fiscal progress.
2. Investor Appetite Dwindling: T-bill subscriptions have dropped from GHS20.499 billion in February to GHS9.264 billion in March, indicating decreasing investor interest as yields fall below inflation rates.
3. Exchange Rate Risks: The 14% spread between T-bill rates and lending rates may push investors toward foreign assets, potentially destabilizing the Ghana cedi and depleting foreign reserves.
4. Political Timing Concerns: Experts caution against using the rate decline for political points, emphasizing Ghana’s ongoing fiscal challenges with revenue collection and consumption borrowing.
5. Sustainability Questions: Without corresponding stability in the local currency and broader economic fundamentals, the yield decline may not be sustainable long-term.
6. Need for Gradual Reform: The Institute recommends coordinated policy with monetary authorities to ensure rate reductions translate to lower business costs without creating exchange rate pressures.
7. Monitoring Gold Policy: Close observation is needed for the government’s gold reserve policies aimed at exchange rate stability and balance of payments management.

Path Forward for Ghana’s Economy

Experts emphasize that sustained fiscal discipline is crucial to ensure lower borrowing costs lead to economic expansion rather than increased government spending. They recommend using interest savings for debt reduction rather than new expenditures, while gradually aligning T-bill rates with lending rates to ease business costs.

By: Dzifa Yeboah