Gov’t offers higher interest rates to meet its high borrowing appetite.

Interest rates on government treasury bills are rapidly rising as the government uses high rates to entice investors to meet its high borrowing appetite. Although a second debt restructuring looms, the government’s borrowing appetite remains elevatedu (high).

Results from last Friday’s treasury bill sale show that all the rates have gone up, with negative implications for businesses.

The interest rate on the 91-day treasury bill has gone up to 24.4% from about 19.7% in April this year; the 182-day bill is also up at 26% from 22% in April, while the One-year note is close to 30% (29.6%) from 26.9% in April.

The high-interest rates enabled the government to exceed its borrowing target last Friday by 31 per cent. The government targeted to raise close to 1.6 billion cedis through various treasury bills, but the amount offered by investors was a little over 2 billion cedis. The government, however, took about 1.98 billion cedis of the total amount contributed.

The continuous increase in treasury bill rates has severe implications for businesses and individuals who want to borrow from financial institutions. This is because the interest rate on loans will equally go up.

More importantly, the higher rates will entice banks to buy treasury bills instead of lending to businesses, a precarious situation that will deny the private sector of the needed capital and further expose these financial institutions to any future government debt restructuring programme.

The government forced down interest rates on treasury bills from about March this year when it took advantage of investors having no option but to invest in treasury bills because the bond market was virtually non-existent due to the debt exchange programme. But what appeared to be an artificial drop was not sustained, as the rates started going up again just a couple of months after that sharp and instant drop.

Meanwhile, the government intends to borrow almost 1.8 billion cedis on Friday, July 14, during the weekly treasury bill sale.

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