Economist at the University of Ghana Business School, Prof. Patrick Asuming has described the recent action of the new government to reject excess treasury bill bids as a positive sign towards controlling the rate of the country’s debt accumulation. He believes the decision is an encouraging step toward fiscal discipline and sustainable debt management.
The government’s short-term instruments market has been basking in soaring investor confidence leading to persistent oversubscription of the bills.
Just last week, while the government sought to borrow GH¢8.1 billion, it received bids worth GH¢17.7 billion, a massive oversubscription of 117%. However, instead of taking all of the investor bids, it settled for GH¢9.4 billion, rejecting over GH¢8.3 billion.
The week before, the government aimed to borrow GH¢7.3 billion but received offers totaling GH¢10.5 billion from investors. Instead of accepting the full amount, the government chose to take only an additional GH¢392.7 million, returning GH¢2.9 billion to investors.
Meanwhile, oversubscription in recent weeks has been coming amid a dropping yield rate. This comes as good news as the cost of borrowing is on the decline.
But Prof. Asuming says the government’s rejection of the excess bills amidst an oversubscription and dropping interest rate signals a fiscal restraint which is generally positive.
In an interview with The High Street Journal, the Economist indicated: “I think overall, that’s a positive thing when the government decides to reject some of the bids in excess of what it had planned, I think that’s generally very positive.”
Despite these positive signs, Prof. Asuming cautioned against premature definitive conclusions. He emphasized the need to observe these trends over an extended period before making definitive assessments of the government’s fiscal strategy.
“But I think it’s too early to read too much into it. Let’s see on a more sustainable basis if you see that this is persistent five months into the administration, then we begin to be firm evidence about the direction and the strategy that the government is facing,” he cautioned.
With Ghana’s public debt stock exceeding GH¢730 billion representing 72.2% of GDP as of last month, the country remains under pressure to adopt more sustainable borrowing practices.
The debt restructuring program and the IMF Extended Credit Facility (ECF) are meant to prevent excessive reliance on short-term borrowing.
Meanwhile, Financial Analyst and Banking Consultant, Dr. Richmond Atuahene has revealed that Ghana’s soaring treasury bill demand poses a hidden risk. He says the current over-reliance on short-term borrowing could lead to default, as seen in Russia and Ukraine. The expert urges revenue mobilization and increased bank lending to avert a crisis.
