Gov’t heavy borrowing starving businesses of funds to expand

Government’s increased borrowing through treasury bills is causing a shortage of loans for businesses and individuals from financial institutions.

The government borrows around two billion cedis every Friday to fund its activities. However, the appetite for borrowing has increased, borrowing a little over three (3) billion cedis last Friday. It has meanwhile advertised to borrow almost four (4) billion cedis (GH¢3,966,000,000) this Friday, August 18, 2023.

The high-interest rates on treasury bills, between 26% and 31% for 91-day, 182-day, and One-Year notes, make lending to the government more attractive to financial institutions than to businesses and individuals. This phenomenon is known as ‘crowding out the private sector’.

A recent statement from the Bank of Ghana shows that the private sector is being denied the necessary funds.

“In real terms, credit to the private sector contracted by 18.5 per cent relative to a growth of 3.0 per cent over the same comparative period”, the statement said, referring to the first half of 2023 compared to the first half of 2022.

This drop in lending to the private sector could result in businesses being unable to expand and needing to lay off workers. Financial institutions are also increasing their exposure to the government again.

Currently, high-interest rates exceeding 35% for many lending institutions make lending to businesses risky, stifling real growth of the economy while the financial institutions buy treasury bills instead.

Market watchers are worried that the government’s appetite for borrowing is still growing, especially when it is embarking on a second phase of Domestic Debt Exchange, affecting Ghana Cocoa Board bills and pensions.