Home Economy Government Falls Short of Treasury Bill Target by 15%

Government Falls Short of Treasury Bill Target by 15%

The government failed to meet its borrowing target for treasury bills during the regular weekly auction held on Friday, May 24

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Government Falls Short of Treasury Bill Target by 15%

The government’s inability to meet its treasury bill borrowing target amid unchanged interest rates and a shift in investor preferences highlights the economic challenges facing Ghana. The impact of the Central Bank’s policy on Cash Reserve Ratios and the rising national debt further complicates the fiscal landscape, posing significant hurdles for future borrowing efforts.

Government Falls Short of Treasury Bill Borrowing Target

In the most recent weekly auction on Friday, May 24, the government fell short of its treasury bill borrowing target. The objective was to raise GH¢4.85 billion; however, the auction only garnered GH¢4.12 billion, resulting in a shortfall of 15.4%. This target was notably one of the highest since early April, amidst declining demand for treasury bills, leading to expectations that the government might face difficulties meeting its goal.

Unchanged Interest Rates

For the first time in several weeks, the interest rates on all but one treasury bill remained unchanged. The 91-day treasury bill rate held steady at 25.09%, the 182-day bill at 26.94%, and the one-year note experienced a minor decrease from 27.95% to 27.94%. These static rates indicate the government’s challenges in achieving its borrowing targets.

Investor Preferences and Economic Confidence

The borrowing distribution revealed that 74.2% of the funds came from 91-day treasury bills, 19.3% from 182-day bills, and 6.5% from one-year notes. This suggests that investors are more inclined to lend to the government for shorter periods, reflecting a lack of long-term economic confidence.

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Future Borrowing Plans

Looking ahead, the government aims to borrow approximately GH¢2.72 billion in the next auction scheduled for Friday, May 31. However, the recent decline in demand for treasury bills could pose challenges.

Impact of Central Bank Policy

The dwindling demand for treasury bills can be attributed to a policy change by the Bank of Ghana regarding banks’ Cash Reserve Ratios (CRRs). During the March Monetary Policy Committee Meeting, the Central Bank adjusted the CRR percentages for banks based on their loan-to-deposit ratios. This directive has likely led banks to reduce their purchases of treasury bills to comply with the new reserve requirements. Consequently, achieving treasury bill targets exceeding GH¢4 billion has become more challenging for the government.

Rising National Debt

Ghana’s national debt increased to GH¢658.6 billion by February 2024, up from GH¢636 billion in January. The debt-to-GDP ratio rose to 62.7% in February from 60.5% in January. Domestic debt also climbed to GH¢278.7 billion in February from GH¢268.4 billion in January, resulting in a domestic debt-to-GDP ratio increase from 25.5% to 26.5%.

Vesta Daily
Author: Vesta Daily

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