91-Day Bill Yield Raises Concern

Bright Simons is a researcher at IMANI Centre for Policy & Education

Published on www.dailyguideghana.com

By William Yaw Owusu

Accra, Wednesday August 22, 2012. 

The announcement by government last week that the yield on its 91-day treasury bill had risen to 22.91 percent from 22.80 percent at the last public sale is raising concern.

According to Bright Simons, lead research at IMANI Centre for Policy and Education, the expansion of borrowing requirements of the government are driving up yields on treasury bills.

He said pressures of mopping up cedis to support the currency's value against the dollar were also contributing to the widening of the yield and must be checked.

He told CITY & BUSINESS GUIDE that managers of the economy were engaged in what he called “the bluffing game” with the market when it put in place some measures to counteract the rise in the value of the dollar.

“The idea is to make the dollar less appealing as a reserve currency for risk-shy investors but at the same time the government is looking to the use of short-term debt to plug the growing budget gaps.”

He said “the result of that exercise was a failure that was quickly transitioned to assaults on forex holders in the form of ad hoc restrictions on forex-based transactions in the economy.”

Mr. Simons, who is also the president of Mpedigree, also noted that already there were signs that the strategy had failed to work, thereby putting what he called “even greater cyclical pressure on the latest, more orthodox approach of using the government securities markets.”

“The problem is that these thrown-together activities create the impression of government finances slowly unraveling and just one step away from out-of-control.”

But with inflation rising at the same time and the policy rate rising in response, the government is fast running out of the maneuvering room.

He said unless actual austerity measures were pursued “the market will see through the gimmickry and begin betting against all the critical rates. That will spell continuing gloom for the Cedi, interest rates and the budget deficit.”

According to BoG, it sold 256.33 million Cedis ($132 million) of the 91-day paper out of a total 324.07 million Cedis of bids tendered on August 9.