The Institute of Public Policy and Accountability (IPPA) has raised concerns about the recent sharp decline in Ghana’s treasury bill (T-bill) rates, warning that the drop may be artificial and could exert renewed pressure on the cedi. While the government has presented the reduction in T-bill rates as a positive sign of economic recovery, IPPA cautioned that the decline in yields could lead to capital outflows as investors seek better returns in assets such as the US dollar.
In a statement, IPPA stressed that the lower T-bill rates do not reflect the true interest rate environment in Ghana. “The finance minister should not rush to celebrate what we describe as an inaccurate reflection of the true interest rate environment,” the institute stated. “Ghana’s core fiscal challenge remains inadequate revenue collection and borrowing for consumption. We caution against excessive pressure on the cedi, driven by an anticipated increase in demand for the US dollar.”
Kwamina Asomaning, Managing Director of Stanbic Bank and President of the Ghana Association of Banks, echoed the concerns raised by IPPA. While acknowledging that the reduction in T-bill rates could be beneficial for the economy, Asomaning pointed out that it had also led to increased demand for dollar-denominated assets. “The drop in the T-bill rates is a good move and should be encouraged by players in the banking industry, however, the development has brought some sudden pressure on the cedi as investors consider the American greenback as a safe haven to get returns on their investments,” he said.
IPPA also noted that the cedi has remained volatile and has yet to achieve the stability seen in 2018 and 2019. “We do not think so as the local currency is far from achieving a relative stability compared to the periods of 2018 and 2019. Historically, sharp declines in interest rates have raised concerns about capital flight and exchange rate pressures,” IPPA explained.
The institute further highlighted that while the government’s efforts to reduce borrowing costs should be encouraged, it emphasized the importance of fiscal discipline to ensure that these lower rates contribute to economic growth, rather than leading to excessive government spending.
Adding to the debate, Dr. Gideon Boako, Deputy Ranking Member on Parliament’s Finance Committee, earlier this week criticized the Finance Ministry’s handling of the T-bill rate reductions. In a Facebook post, Dr. Boako described the reductions as “artificial” and “unsustainable,” accusing the government of manipulating T-bill rates for political purposes. “When you advise the government, they won’t listen. But how do they feel now that their so-called ‘artificial’ drop in T-bill rates, engineered for propaganda, has been undone?” he wrote.
This drop in investor interest coincided with a consistent decline in T-bill rates. The 91-day bill fell from 15.86% to 15.73%, the 182-day bill held steady at 16.92%, and the 364-day bill dropped slightly from 18.96% to 18.84%. As these rates continued to decline, investor interest appeared to wane, with many now seeking alternative investments with higher returns.
For the government, the situation presents both opportunities and risks. On the positive side, the lower T-bill rates mean reduced borrowing costs, and a shift of funds away from government securities could channel capital into the private sector, potentially boosting real economic growth. However, with the suspension of bond market activities due to the Domestic Debt Exchange Program (DDEP), the T-bill market remains the primary avenue for government borrowing. A continued decline in investor interest could make it increasingly difficult for the government to raise funds for its operations.
Dr. Boako also pointed to the lack of coordination between fiscal and monetary authorities as a major issue. He argued that the Finance Ministry’s push to lower T-bill rates is at odds with the Bank of Ghana’s recent policy stance. The central bank raised the policy rate by 100 basis points from 27% to 28% in an effort to control inflation, which contradicts the Finance Ministry’s goal of reducing borrowing costs. “The Finance Minister must take a cue: macroeconomic management is critical to national financial stability. The ongoing policy incoherence between the Finance Ministry and the Central Bank exposes a worrying lack of coordination,” Dr. Boako stated.
IPPA also emphasized the importance of a coordinated approach to economic management. The institute urged the Finance Minister, Dr. Cassiel Ato Forson, to work closely with the Bank of Ghana to implement a balanced monetary policy that takes into account the potential risks to the cedi. “We want the reduction in the T-bill rates to correspond with a sharp decline in lending rates. This will significantly ease the cost of doing business. Therefore, we want to see a fiscal policy that drives revenue mobilisation but is also business-friendly,” IPPA stated.
