Economist and Finance Lecturer at the University of Ghana Business School, Professor Lord Mensah, has sounded the alarm on Ghana’s persistently high-interest rates on treasury bills, hinting at a potential restructuring by the government if necessary measures are not taken to alleviate the situation.
Professor Mensah’s remarks came in the wake of the government’s unsuccessful attempt to significantly reduce interest rates on domestic bonds through its first round of debt restructuring.
Highlighting the current interest rate landscape, Professor Mensah pointed out that while bond interest rates hover around 8% to 10%, treasury bills yield an exorbitant 25%. This stark disparity, coupled with a downward-sloping yield curve signaling an ailing economy, has raised concerns about the efficacy of the recent restructuring efforts.
During a thought-provoking NorvanReports’ and Economic Governance Platform Twitter Space Conversation titled “Restructuring Of Domestic Bonds, Where Do We Go From Here,” Professor Mensah intimated that if the government fails to address the issue of high-interest rates, particularly on short-term debt securities, a second round of debt restructuring is likely to occur, with the treasury bills market as the prime target.
Already, the Government is looking to re-structure some $2.7bn in pension funds held by members of the country’s organised labour unions.
Drawing attention to the upcoming 2023 mid-year budget review, Professor Mensah urged the government to seize this opportunity to prioritize interest rate reduction on its debt securities. Failure to address the matter in the budget review, he cautioned, could have grave consequences and potentially necessitate a restructuring of treasury bills.
“If in the mid-year budget Government doesn’t say it will reduce interest rates then we are heading for doom and that may lead to a re-structuring in T-Bills, it has been done before and Ghana won’t be the first to do that,” he posited.
Despite the substantial interest rate payments involved, treasury bills remain the sole source of financing for the government, exempted from the domestic restructuring decisions taken by the government.
The observations made by Professor Lord Mensah underscore the pressing need for the government to tackle the issue of high-interest rates on its debt securities. The potential restructuring of treasury bills reflects the gravity of the situation and the imperative of implementing measures to stimulate economic growth and restore investor confidence.
The mid-year budget review assumes heightened significance as it represents a critical juncture for the government to outline its strategies for interest rate reduction and the cultivation of a more favorable yield curve.
As stakeholders closely monitor the country’s economic landscape, addressing the concerns raised by Professor Mensah becomes paramount. The ability of the government to navigate these challenges and instill confidence in the economy will play a decisive role in shaping Ghana’s financial future.
Norvanreport