Wednesday, March 19, 2025

Decline in interest rates is due to reduction in govt spending – Finance ministry

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Panelists at KPMG-UNDP Post Budget Forum Panelists at KPMG-UNDP Post Budget Forum

The Head of the World Bank Unit, External Resource Mobilization Division of the Ministry of Finance, Nelly Mireku, has attributed the reduction in the interest rates on the financial markets to a decline in the government’s spending.

According to her, the 2025 Budget is focused on fiscal consolidation and tightening of the fiscal space to increase production and growth.

She said the over-reliance on treasury bills poses a higher risk on the government during maturity, emphasising the need to be cautious.

Speaking during the KPMG-UNDP Post Budget Forum on March 13, 2025, she said: “Following the debt restructuring, particularly the DDEP and the closure of the international capital market to Ghana, the government has mainly relied on the domestic end of the market, mainly treasury bills 91-day, 182-day and maximum one year.

“You know that this has a higher refinancing and rollover risk on the government. So, the intention in the budget to reopen the bond market will be done gradually. The idea is to move slowly away from the short side of the market, depending on the market.”

Interest rates on T-bills have reduced significantly in the past few weeks, currently standing below 17%.

Mireku said this is a result of the government’s decision to reduce expenditure and borrowing.

“With the treasury bill financing that we’ve been doing for the past few months, we began with a decline in the rates and this is mainly because government spending has been reduced.

“The financing requirement of government has come down, obviously because the budget is hinged on expenditure rationalisation. Government borrowing has reduced and that is what is contributing to the lower rates that we are seeing. Within a short rate, we have been able to bring it down to more than 1000 basis points. If this continues, we will be able to see a positive impact for businesses because we will be crowing in the private sector,” she said.

SSD/AE

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