Money Market Operations (Auctions)

The overall thrust of Ghana Government’s domestic debt management policy in 2006 was to build capacity for improved debt management as well as to broaden and deepen the domestic money market. This included the following key objectives:

• Lowering of borrowing costs;

• Containing the growth of the domestic debt;

• Lengthening the maturity profile of domestic debt to reduce the rollover/refinancing risk;

• Improvement in Public Sector Borrowing Requirements (PSBR) determination and daily/weekly forecasting;

• Continuing to improve the efficiency of Government debt financing through the use of public auctions and stable issuance; and

• Interacting with the market-makers to allow for greater transparency and liquidity as well as further development of the domestic capital market.

Government was successful in building on the achievements attained in 2005 and meeting the key objectives of:

• Reducing the borrowing costs (lower interest rates) of the various debt instruments. The average Treasury Bill Rate fell from 13.79 per cent in September 2005 to 10.37 per cent in September 2006. The volume of refinancing fell from ¢19.9 trillion to ¢11.0 trillion or from ¢383.0 billion to ¢211.0 billion per week;

• shifting towards the longer end of the market by increasing the level of outstanding medium - term instruments. The medium-term funding increased by ¢3,285.1 billion or 43.6%, that is, the balance outstanding as at the end of September 2006 stood at ¢10,818.1 billion compared to ¢7,533.0 billion in September 2005;

• Listing of the 2-year fixed rate treasury note and 3-year fixed rate Treasury bond on the Ghana Stock Exchange (GSE), which took place in October 2006 to boost trading in these securities; and

• improving the forecasting of Public Sector Borrowing Requirement (PSBR) as a result of the completion of the electronic linkage of Government Accounts at the Bank of Ghana (BoG) to the Ministry of Finance & Economic Planning (MoFEP) and the Controller & Accountant - General’s Department (CAGD). Daily account balances and outstanding bills are being factored into the determination of the weekly PSBR.

Maturity Structure of Domestic Debt Stock

Domestic Debt Stock

The Public Domestic Debt (excluding ¢4,952.3 billion interest bearing revaluation stock and other long-term stocks held by Bank of Ghana) stood at ¢17,061.2 billion or 15.21 per cent of GDP as at the end of September 2006. This represents an increase of ¢3,420.2 billion or 25.2 per cent over the stock of ¢13,631.0 billion at the end of September 2005. Factors accounting for the increase in the domestic debt for the period end September 2006 include the following:

• Lower-than-programmed inflows from tax revenues and divestiture receipts;

• Delays and non-receipt of some pledged funds in Multi-Donor Budget Support inflows; and

• Unanticipated demand and agitation for higher wages by the public sector workers.

• Unanticipated transfers to SOE’s such as TOR and VRA on account of under-recovery and higher oil requirements respectively.

  Domestic Debt Stock by Instruments (Sept. 2006)

Domestic Debt Service

By end-September 2006, domestic debt service of Ghana amounted to ¢11,396.1 billion, made up of a redemption of ¢9,554.0 billion and ¢1,842.1 billion interest payment, compared to ¢15,133.1 billion during the same period in 2005. This represented an overall reduction of ¢3,737.0 billion (24.7 per cent) over the 2005 level.

On-Lending And Government-Guaranteed Loans

Government made a projection of recovering an amount of ¢132 billion (including arrears of ¢107.54 billion since 2004) of on-lent and government-guaranteed loans, from State-Owed Enterprises (SOEs), parastatal and private enterprises in an effort to increase domestic revenue in 2006. This was expected to be recovered within a period of 18 months from March 2006, to August, 2007.

With the assistance of debt collection agencies, government was able to recover a total amount of ¢12.8 billion which is an improvement over the ¢10.2 billion recovered in 2005.

To achieve the above target, Government is committed to improving the capacity to meet the challenging requirements in the management of on-lending and government-guaranteed loans.

Source: Ministry of Finance / 2007 Budget, Ghana