How are local investors eyeing Ghana’s T-bills market?

The recent oversubscription of Ghana's two-tenor Treasury Bills by about 14 percent has brought attention to the country's T-Bills market. With the Treasury's auction coming at a higher cost, local investors are closely eyeing the implications of this development. Courage Martey, a Senior Economist at Data Bank Group, provided insights into the factors driving this trend in a recent interview with CNBC Africa. Martey highlighted that the oversubscription of the T-Bills marked a significant shift after several weeks of undersubscribed government securities auctions. The high cost of the T-Bills can be attributed to key variables such as inflation outlook and the supply of funds in the market. Inflation rates soared to 23.6 percent in April, leading to aggressive liquidity tightening by the central bank. These factors have influenced the pricing of government bonds, resulting in yields exceeding 20 percent. The discussion with Martey delved into the fiscal deficit challenges facing the Ghanaian government. Despite implementing a 10 percent cut in discretionary spending by ministries and agencies, achieving the targeted 7.4 percent fiscal deficit of GDP remains a concern. The first-quarter deficit already surpassed expectations, signaling the need for tighter fiscal measures to control expenditure and align it with revenue. Controlling spending and enforcing the public financial management law are crucial steps to address fiscal challenges. As Ghana grapples with a high debt stock, Martey emphasized the need for strict spending controls and enhanced expenditure accountability. The government's plan to secure syndicated facilities worth $2 billion could help refinance existing debts and reduce interest costs. However, the success of these efforts hinges on effective debt management and sustainable borrowing practices. Looking ahead, Martey predicted that investors would demand higher yields in subsequent bond issuances due to the prevailing high inflation environment. With limited participation from non-resident investors, domestic investors hold more bargaining power in pricing government securities. The leverage of investors stems from alternative investment options such as quasi-government bonds and corporate issuances, along with the government's refinancing risks. In comparison to Nigeria's bond market, where institutional investors face limited investment options and low returns, Ghana's market presents unique leverage for investors. Alternative investment opportunities and the government's financing needs contribute to investors' ability to negotiate higher yields. The dynamics of both markets underscore the importance of strategic investment decisions amidst evolving economic conditions. As Ghana navigates the challenges in its T-Bills market and fiscal landscape, proactive measures to enhance transparency, control spending, and manage debt will be critical for safeguarding economic stability and investor confidence.