Government of Ghana borrowing costs have surged, with 91-day T-bill rates rising 240 basis points since July, posing challenges to debt reduction efforts.
The cost of government borrowing has risen significantly over the past four months, with interest rates on treasury bills (T-bills) increasing across all three instruments—91-day, 182-day, and one-year notes. This rise signals that the government will now pay more for public borrowing at a time when it is trying to finalize debt restructuring and bring its debt to more sustainable levels.
Earlier this year, interest rates on T-bills were high due to rampant inflation but began to decline as inflation eased. At the start of 2024, the 91-day T-bill was at 29.19%, the 182-day at 31.74%, and the one-year note at 32.34%. By early July, these rates had significantly dropped further to 24.78%, 26.74%, and 27.78%, respectively. However, when government borrowing surged in the second half of the year, the rates reversed course and began climbing again.
Despite the Bank of Ghana reducing the policy rate from 29% to 27% in September, interest rates on T-bills have continued to rise. This week, the rates jumped to 27.19% for the 91-day, 27.98% for the 182-day, and 29.82% for the one-year note, meaning all T-bill rates now sit above the policy rate.
Since July, the 91-day T-bill has seen the sharpest increase, rising by approximately 240 basis points, while the one-year note climbed by 200 basis points. The 182-day bill saw a more moderate increase of 124 basis points. Notably, the 91-day T-bill, which accounts for around 90% of the government’s weekly borrowing, experienced the highest rate of increase. This means the government will now face higher costs for short-term borrowing—a burden at a time when it is striving to reduce national debt.
The upward pressure on T-bill rates began when government borrowing soared, at times surpassing GH¢ 6 billion, while demand for the bills remained low. In response, interest rates were hiked to help the government meet its borrowing targets.
The Monetary Policy Committee (MPC) of the Bank of Ghana has been holding meetings this week to review the state of the economy. Analysts widely expect the MPC to maintain the policy rate at 27%, as inflation continues to rise and the government is already offering higher rates on T-bills. However, concerns are growing that these rising interest rates are contributing to mounting government debt, posing a challenge to the country’s goal of reducing debt to sustainable levels by 2028.
This trend threatens the government’s debt management strategy and complicates efforts to keep borrowing costs under control, underscoring the delicate balancing act policymakers face amid growing financial pressures.
