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Business News of Wednesday, 6 May 2015

Source: B&FT

T-bills rate slide persists

Treasury yields, which indicate the cost of government’s borrowing, have been falling consistently since February 20.

The 91-day T-bill has fallen for 11 straight weeks since the latter part of February, declining from 25.85 percent to 25.08 percent at last Thursday's auction.

Also, the 182-day bill has fallen for 10 straight weeks since February 27; declining from 26.41 percent to 25.74 percent at last week’s auction.

The current 91-day yield of 25.08 percent is the lowest since August 29, 2014 while the 182-day yield of 25.74 percent is the lowest since July 04, 2014.

Analysts say while the size of the decline in the yields is not significant, the development is positive and will be even more beneficial for the economy if maintained. Falling yields imply a reduction in the cost of borrowing for government, which is deemed crucial to facilitating fiscal consolidation.

Additionally, Treasury rates also impact on the rates at which businesses borrow from the banks. But whether this trend will continue depends on inflation developments and stability of the cedi, which continues to slide and poses possibly the greatest risk to macroeconomic stability currently.

Government has planned to borrow more than GH¢25billion from the domestic market within the first six months of 2015 as against the GH¢14.3billion it borrowed through the issuance of securities in the same period last year.

The local currency, which has fallen by more than 16 percent in the first quarter of the year, continues to stoke inflationary pressures. Last month’s inflation stood at 16.6 percent, rising marginally from 16.5 percent in February.

The fall in the yields is welcome news for government, especially at a time when interest payment continues to weigh heavily on government’s resources.

Total interest payment for 2015, according to the Finance Ministry, is estimated at GH¢9.6billion -- equivalent to 7.1 percent of GDP and 24.4 percent of total expenditure. Of this amount GH¢1.5billion will be expended on external interest, while GH¢8billion will be for domestic interest payments.

The country’s total public debt stock as a percentage of GDP increased from 36.3 percent in 2009 to 48.03 percent in 2012, and further to 55.53 percent in 2013 and 67.6 percent last year.

The finance ministry has attributed the rapid rise of public debt in recent years to an increase in external net disbursements for infrastructure projects and net domestic issuance, as well as depreciation of the cedi.

Government’s third US$1billion Eurobond in as many years comes at a time an International Monetary Fund bailout programme is in full swing. The bond will be used to retire maturing Eurobond in 2017, and will come at some cost to government given the local currency’s continuous slide.

The venture into the Eurobond market, which is supposed to be a strategy to avoid expensive domestic interest rates, is becoming increasingly costlier in terms of the cost of the debt in cedi terms. Ghana’s last September Eurobond attracted a coupon rate of 8.125% as the local currency went on to finish the year depreciating by 30.9%.

In addition to the weak cedi, the IMF has said in its latest World Economic Outlook that sub-Saharan African countries, including Ghana, planning to issue Eurobonds this year will have to put in place a contingency plan as it envisages possible surges in exchange rate volatility.

The concerns of the WEO report stems from what it described as “unusually large” exchange rate movements. Among major currencies, the dollar has seen a major appreciation -- which reflects major differences in monetary policy, with the United States expecting to exit the zero lower bound this year -- and the euro and yen, a major depreciation.