By Samuel Lartey (Prof)
In a striking display of investor confidence, the Government of Ghana raised GH₵9.43 billion in last Friday’s short-term debt auction, surpassing its GH₵8.06 billion target by 119%.
Primary dealers, primarily banks, placed bids totaling GH₵17.69 billion, underscoring robust liquidity in the financial services sector. However, beyond the headline numbers, the broader implications of such auctions on banks, businesses, and the Ghanaian economy spark significant debate.
While these investments offer the government critical short-term financing, they also reshape the financial landscape, with far-reaching consequences for corporations and the larger society.
Implications for the government and financial services sector:
The GH₵9.43 billion accepted from the auction provides the government with immediate liquidity to settle maturing bills of GH₵7.5 billion, ensuring fiscal continuity. However, the government’s selective acceptance, rejecting GH₵8.26 billion in bids, highlights a cautious approach to borrowing costs and interest rates.
For banks, such auctions present a secure investment avenue with low risk and guaranteed returns, reinforcing their balance sheets. Yet, the concentration of bank investments in government securities often leads to a phenomenon known as ‘crowding out,’ where banks prioritize lending to the government overextending credit to private enterprises.
Impact on corporations, small, medium, and large enterprises:
The crowding-out effect is a double-edged sword for the business community. Small and medium enterprises (SMEs) face reduced access to credit, higher borrowing costs, and limited capital for expansion, stifling their growth. Large corporations, although more resilient, may encounter increased competition for capital, raising their cost of borrowing. Notably, data from the Bank of Ghana reveals that private sector credit growth decelerated from 10.4% in December 2023 to 7.8% in January 2024, coinciding with increased government borrowing.
Implications for the economy, society, and citizens:
The broader Ghanaian economy bears the weight of these financial shifts. Reduced private sector investment slows job creation, innovation, and industrial growth. According to the Ghana Statistical Service, the unemployment rate rose to 14.7% in Q4 2023, partly due to diminished SME activity. Socially, citizens experience a trickle-down effect—fewer employment opportunities, stagnant wages, and rising living costs.
Perceptions from large investors and the international trade ecosystem:
Global investors view Ghana’s robust auction performance as a sign of market confidence, enhancing the country’s credit profile. However, sustained crowding-out practices raise concerns about private sector development and economic diversification. International trade partners often prefer markets where private enterprises thrive, as they drive commerce and innovation. Ghana risks dampening foreign direct investment (FDI) if the business climate becomes too government-centric.
Conclusion:
Ghana’s recent short-term debt auction highlights a complex financial interplay, bolstering government liquidity while straining private sector growth. For sustainable economic advancement, the government must balance borrowing with policies that foster private sector investment.
Initiatives such as incentivizing banks to increase private sector lending or introducing blended finance schemes could bridge this gap. Ultimately, the path forward requires a balanced approach that not only secures government funding but also nurtures the growth engine of Ghana’s economy—its businesses and people.
