Stability under strain
Ghana undershoots treasury bill target despite strong cedi; plans debt reduction and utility reforms.
For the second consecutive week, Ghana’s government failed to meet its treasury bill target, despite the Ghana cedi being the world’s best-performing currency. The Bank of Ghana’s auction results showed a marginal undersubscription, with GH¢5.216 billion raised against a GH¢5.386 billion target. Interest rates continued to fall. On debt management, President John Dramani Mahama confirmed that Ghana plans to reduce its $2.5 billion debt to independent power producers and gas suppliers by year-end, after restructuring a $1 billion legacy debt. Challenges in state utility collection and losses were also noted, prompting the involvement of the private sector in billing.
Ghana's economic trajectory appears increasingly promising, highlighted by a significant 25% appreciation of its local currency, the cedi, against the US dollar since the start of the second quarter. This robust performance has demonstrably bolstered investor confidence, culminating in a positive upgrade of the nation's long-term bond issuance rating by S&P. While some analysts attribute the cedi's strength primarily to a broader weakening of the US dollar on global markets, a closer examination reveals the pivotal role of internal measures, particularly a renewed emphasis on fiscal discipline. The recent enforcement of a Fiscal Responsibility Act, including a clearly defined debt ceiling, has sent a strong signal of Ghana's commitment to sound economic management, which is a significant draw for investors.
The sustained performance of government securities further underscores investor confidence in the Mahama administration. Despite interest rates on the benchmark 91-day Treasury bill remaining below 17%, investor participation remains robust, indicating trust in the government's current fiscal direction. Complementing this, the administration has actively implemented measures to curb public spending. These include a strict travel ban for appointees, except for essential official duties, and a substantial reduction in the size of the cabinet to fewer than 60 ministers, a significant contrast to the over 120 appointed during former President Akufo-Addo's initial term. Furthermore, the government has adopted a more selective approach in accepting bids for its Treasury bills, demonstrating a commitment to avoiding the fiscal missteps of the past.
A critical challenge for the Mahama administration remains the power sector, a long-standing contributor to public debt. Ghana's current energy mix predominantly relies on thermal sources, with Independent Power Producers (IPPs) now providing over 60% of the nation's dependable generation capacity. This reliance presents the government with the significant and ongoing task of making monthly payments to these IPPs and their fuel suppliers, often exceeding $50 million. This consistent financial burden has placed a considerable strain on public resources, which has garnered the President's attention.
However, there is a sense of optimism on the horizon. The recent and significant appreciation of the cedi is anticipated to alleviate the fiscal pressures associated with energy sector shortfall payments, particularly those denominated in foreign currencies. The government is hopeful that the cedi's strong performance will be sustained, supported by growing national reserves backed by gold, increasing revenues from cocoa exports, and a steady inflow of remittances. These improving economic fundamentals provide a more stable outlook for the Ghanaian economy overall and could significantly aid the administration in managing the complexities of the energy sector more effectively while maintaining the currently strong levels of investor confidence.