Ghana’s debt restructuring programme, dubbed the Domestic Debt Exchange Programme (DDEP), resulted in GH¢83 billion out of the country’s GH¢130 billion in domestic bonds being exchanged for bonds with lower yields. This policy has all but frozen trading on the fixed income market and left treasury bills as the only government debt security available on the market.

With interest rates hovering around 35%, treasury bills were the only security on the market guaranteeing returns anywhere close to the 53.6% rate of inflation. It is no wonder therefore that treasury bill auctions kept getting oversubscribed by as much as GH¢2 billion on a weekly basis. Given the monopoly treasury bills had however, it was always likely that the government would force the interest rates downwards.

On March 3, 2023 the government rejected all bids at the treasury bill auction and re-held it on March 7 where it raised GH¢4.5 billion at interest rates of 24.1%, 26.6% and 27.5% for the 91-day, 182-day and 364-day treasury bill respectively. This was GH¢1.7 billion more than the government’s target for the auction. And demand was booming with a further GH¢1.6 billion worth of bids being rejected.

The DDEP had already significantly impaired the value of bank’s investments and it is expected that their interest income for the year will also be affected. The reduction in treasury bill interest rates is going to worsen their current financial challenges. Even before this interest rate drop, South Africa’s First Rand had already written off 57% of the value of its Ghana sovereign debt holdings (both domestic and external). This is an indication of just how big a loss in the private financial sector has been occasioned by the country’s debt crisis.

However, Ghana has found itself in the uncomfortable situation in which the government’s gain is the private sector’s loss. In seeking to bring down an interest payment bill which consumes half of all public revenue, the government has been shifting the bill to the private sector through increased taxes and the debt restructuring. Finding a balance will be crucial for the government’s own fiscal health in the future. This is because growth is going to be the ultimate driver of a return to debt sustainability. And the risks to long-term growth are going to be higher if private sector capital is drained.

UPDATE

Since I wrote this post the treasury bill rate has further declined to between 19% to 26%.