By Joshua Worlasi AMLANU,[email protected]
- expert says negative real returns temporary
- with lower inflation on the horizon
Investors in Treasury Bills (T-Bill s) are facing negative real returns as short-term government securities yield significantly lower rates than the prevailing inflation.
The 91-day T-bill rate fell to 15.86 percent as of March 17, 2025, from 28.19 percent in January, a decline of 1,233 basis points. The 182-day and 364-day rates also dropped by 1,199 and 1,118 basis points, respectively, even as inflation remained high at 23.1 percent in February.
The sharp decline in yields has sparked concerns among investors, who fear that returns on T-bills may not keep pace with inflation, eroding the real value of their funds. Market analysts, however, argue that the government has factored inflation expectations into its fiscal strategy.
The Finance Minister, Dr. Casiel Ato Forson, in the 2025 budget, projected inflation to decline to 11.9 percent by year-end, suggesting that the current dip in yields aligns with anticipated macroeconomic improvements.
Analysts have moved to reassure investors that it is unlikely the negative real returns will persist, with Courage Kingsley Martey, Head of Insights at IC Securities, stating that the drop in yields reflects confidence in falling inflation rather than a sign of distress.
“Investors should view the current rate adjustments in the context of broader economic stability. If inflation follows the government’s projections, real returns on T-bills will gradually improve,” he said said during IC Securities’ 2025 Investment Webinar.
Additionally, there is the broad expectation that yields would slowly rise, as the government is currently constrained to rely primarily on T-bills.
Mr. Martey also believes that the 2025 budget is designed to restore price stability, which, in turn, will lead to lower interest rates.
“In our review of the 2025 budget, what came out clear to us is that most of the measures in the budget are geared towards restoring stable prices,” the analyst said.
He explained that stable prices extend beyond goods and services to exchange rates, ensuring that inflation.
A reduction in inflation, Mr. Martey noted, lowers the risk associated with investments. “Once the rate of increase in the price of goods and services reduces, the intention of the policymakers or the government is to reduce interest rates on the back of these lower prices, because increasing the price of goods and services is a risk to investment,” he explained.
The government’s fiscal approach includes reducing total expenditure to curb excess spending and borrowing.
Mr. Martey likened this to a market scenario where high demand drives prices up. “If you are selling two oranges and 20 people approach you to buy them, there’s pressure to increase the price. What the government is doing by cutting its expenditure is reducing the number of people demanding the oranges, so price pressures ease, leading to stability,” he elaborated.
At the revenue end, authorities are targeting a 20 percent increase without significantly raising taxes. Instead, the strategy involves eliminating certain levies, including the electronic transaction levy (e-levy), to enhance disposable income for businesses and individuals.
The government has also signaled plans to reform the value-added tax (VAT) system, with the potential removal of the COVID-19 levy, a move expected to further ease price pressures.
Mr. Martey pointed out that curbing the fiscal deficit remains a key priority. The government intends to finance the deficit exclusively through treasury bills, given the bond market’s continued closure following debt restructuring.
“Since 2023, the government has financed its deficit 100 percent using treasury bills, and this will continue in 2025,” he noted.
Beyond fiscal measures, the government is also focusing on the agricultural sector to mitigate food inflation, a major driver of overall inflation. By increasing the supply of key food items such as grains, vegetables, and poultry, authorities aim to balance demand and stabilize prices.
While the measures outlined in the 2025 budget may temper economic growth in the short term, Mr. Martey believes the measures will ultimately create the foundation for sustained recovery.
“These measures, while expected to restore price stability, may slow economic growth in the short term. However, once stability is retained, growth is expected to rebound from 2026 and beyond,” he said.
