Govt’s domestic debt to double in 2015

Business News of Thursday, 8 January 2015

Source: Citifmonline.com

Seth Terkper Dr Kofi Wampah

Government intends to borrow about twice the amount it did from the domestic market last year through bonds and treasury bills in the first half of 2015.

The Bank of Ghana has announced government’s intention to borrow about 25.4 billion cedis in debt, which is over 100 percent more than what it raised in the first 6 months of last year.

In the first half of last year it borrowed about 12.1 billion cedis.

In January 2015, government intends to borrow about 3.5 billon cedis from the domestic market. This amount is about 68% higher than the 2.1 billion cedis raised in January last year.

Of this amount about 1.92 billion will be raised through 91 and 182-day bills while 1.6billion cedis will be raised through one and two year notes.

In February, government intends raising about 4.15 billion cedis, twice the amount it raised in February, 2014.

Same amounts for the 91, 182 day, 1 and 2 year notes will be raised as it was for January.

However a 3 year bond will be issued to raise an amount of 630million cedis.

Last year the 3 year bond issued was 402million cedis.

The same bills, notes and bonds issued in February will also be issued in May.

In March, 4.84billion cedis will be raised in domestic debt, more than twice what was raised last year.

2.4billion cedis will be raised through 91 and 182 day bills while 2billion cedis will be raised through 1 and 2 year notes.

In addition a 5 year bond will be issued to raise 440 million cedis.

The same bills, notes and bonds issued in March will also be issued in June to raise the same amounts.

In April 2015, government intends to borrow 3.92 billion cedis from the domestic market which is about 1.84 billion cedis more than what was borrowed same month last year.

Prominent in these debt instruments will be the first 7 year bond to be issued in 2015.

Government will raise an amount of 400million cedis through this bond.

So what then are the implications of the significant increase in domestic debt?

The most immediate effect is the crowding out of the private sector.

The numbers show government clearly is still thirsty for more debt considering the plan to borrow more in the short term instruments, which are the 91 and 182 day t-bills.

Interest rates are likely to go higher, which makes it a preferable option for banks to invest rather than give those monies to individuals or businesses as loans.

The current rate on treasury bills is about 26%, it will hence be difficult for any bank to give you a loan below this rate.

Some analysts last year projected interest rates on treasury bills may go as high as 29 or 30%.

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