Interest rates in the country could be reduced in the medium to long term if government reviews its level of borrowing, according to the President of the Ghana Bankers Association (GAB) Asare Akuffo.

He explained to Economy Times that government should reduce its level of borrowing from the money market, which is the only way interest rates could be slashed down. Government always borrows from the money market through issuance of treasury notes at a particular coupon rate to finance its domestic deficit.

Universal Banks base average lending rates is between 25.9 percent and 25.7 percent narrowing the spread between lending and savings deposit rates to 13.2 percent. However government’s debt management strategy by government depicts that non-concessional borrowing will be restricted to mainly economically viable and self-financing projects on a competitive basis, and explore hedge options to improve predictability of debt service of variable rated loans.

In addition to this there will be liability-sharing financing measures that will involve the issuance of guarantees and on-lending to self-financing SOEs, and JV/SPV projects; and secure loan financing for only planned projects drawn from the reservoir of projects compiled in the Public Investment Programme (PIP) and GSGDA.

Government’s strategy for domestic financing will aim at maintaining a well-functioning domestic debt market in conjunction with external financing options. To achieve this, government plans to pursue moderating the growth of domestic debt; lengthening the maturity profile of domestic debt to reduce the frequent refinancing risk; broadening the range of instruments offered in the domestic market, including options of targeting instruments to ensure transparency and development of a benchmark yield curve; and extending the yield curve by issuing 7-year or 10 year fixed rate bonds aimed at reducing liquidity in shorter dated instruments.

By the end of December 2012 debt simulation exercise showed vulnerability to the exchange rate in a stress test with the debt to GDP ratio approaching its threshold by the end of 2018. The main vulnerabilities are related to a high debt service-to-revenue ratio which may pose a risk to the fiscal outlook.

While overall public sector debt is projected to marginally increase in relation to GDP in the medium term, the ratio of 49.5 per cent at end December 2012 does not provide strong buffers against shocks. Government in this regard will embark on a gradual fiscal consolidation and additional revenue mobilization measures, supported by a stable economic growth.

The Government is committed to the timely completion of projects including those under identifiable source of long term financing. In this regard, the project implementation team in MoFEP will work diligently with the beneficiary MDAs to finalize the relevant documentations relating to the outstanding projects under the facility to scale up disbursement and ensure timely completion of projects by 2015.

In this regard, MoFEP will enforce the Cabinet directive on completing pipeline projects as a matter of priority. The completion of these projects will significantly reduce the infrastructural deficit in critical areas of the Economy.