Due to lack of trust in the long-term recovery of the economy, foreign and domestic investors have dumped long-term investment instruments for the short-dated ones, resulting in a consistent rise in the quantum of bids submitted during the auctioning of these securities at the Bank of Ghana (BoG).
A Graphic Business analysis of trends in the auctioning of securities in the country showed that the number of bids submitted by investors has always exceeded the targeted amount by an average of 10 per cent every month since the beginning of this year.
Cumulatively, the quantum of bids submitted by investors for the purchase of one and two year bonds and the treasury bills (T-Bills) issued by the Government of Ghana (GoG), Bank of Ghana (BoG) and the Ghana Cocoa Board (COCOBOD) increased by 20.2 per cent to GH¢18.5 million in the first quarter of this year compared to GH¢15.4 million recorded in the fourth quarter of 2014. In the first quarter of last year, bids submitted totalled GH¢10.9 million, data from the Central Securities Depository Ghana showed.
Beyond it being a clear indication that investors are always willing to buy more bonds and treasury bills than the country is ready to sell, a financial consultant and stock analyst, Mr Mahama Iddrisu, said the increment showed that investors had substantial doubts about the long-term prospects of the economy.
As a result, he said, they were eager to invest in these securities, which mature after a relatively short period, than investing in three, four or five to ten year instruments, whose returns are virtually tired to the long-term prospects of the economy.
"Generally, when there is doubt that the economy will come up in the next three to four years, nobody will do long-term investments and I think that is what we are seeing currently," he said.
"If there is strong appetite for short-term securities, as we are seeing now, then it tells you that there is little trust that the economy will get better soon and because of that people will always want to do short-term so that they can quickly recoup their money before anything bad happens," he told the GRAPHIC BUSINESS on May 15.
The Chief Executive Officer of Ghana's Central Securities Depository, Mr Stephen K. Tetteh, shared similar views. He explained that the actions of investors in the short-term market were always a reflection of their anticipations of the long-term macroeconomic environment in every country.
"Anytime people anticipate that inflation and other interest rates will come down, they tend to lock up in the long-term but if there is little expectation of things improving long-term, then few people go there; they all do short-term so they can get their money and go away or rollover," he said on May 15.
Doubts over IMF deal
The investor community's growing preference for the short-term securities over long-term instruments means that although the Finance Minister, Mr Seth Terkper, continues to preach about the government's confidence in the medium to long-term prospects of the economy, it does little to assuage their anticipations about the current fiscal environment.
Their actions are also an indictment on the austerity package that the country entered into with the International Monetary Fund (IMF) aimed at stabilising the economy while gaining policy credibility for the government's much-touted home-grown economic policies.
Until government signed onto that three-year package in April this year, there was anxiety among economists that the current fiscal slippages, occasioned by a mounting debt and a corresponding rise in interest payments, could push the country back to the status of a Highly Indebted Poor Country (HIPC).
Although the deal has taken effect, Mr Iddrisu of EDC said indications were that its implementation would help tighten government finance, slow the growth of businesses and result in a drop in economic growth.
This is evidenced in the actions of the investor community, he said, explaining that the financial market was well aware of the implications of an IMF deal on economic growth.
"People who are more into the financial sector know what IMF things lead to; it will reduce government spending and will have an impact on revenue generation and that will also translate into a drop in growth. All these will just heat the system, especially now that this programme is aimed at cutting the deficit," he said.