Fix yield curve, restore discipline before bond market return – Dr. Atuahene urges

Dr. Atuahene warns that the inverted yield curve is a serious issue. He notes that Treasury bills yield an average of 18 percent. Meanwhile, long-term bond rates are below 9.1 percent. This situation indicates that the market does not support long-term issuances.

An inverted yield curve occurs when short-term interest rates exceed long-term ones. It often signals potential economic contraction. In Ghana, this reflects increased investor risk aversion after the 2022 Domestic Debt Exchange Programme (DDEP). The DDEP caused significant losses for financial institutions and pension funds.

The government has reduced market yields by over 1000 basis points. As of April 22, the 182-day bill dropped to 16.18 percent. The 364-day bill fell by 3 basis points to 18.62 percent, while the 91-day bill stands at 15.45 percent.

In March 2025, the central bank raised its policy rate by 100 basis points to 28 percent due to ongoing inflation pressures. Dr. Atuahene suggests a comprehensive policy response for stabilization and fiscal management.

He emphasizes aligning debt issuance with investor expectations to restore debt sustainability. Meeting key IMF targets is crucial, including reducing public debt-to-GDP to 55 percent by 2028.

Dr. Atuahene warns against issuing new domestic bonds before achieving these targets, calling it fiscally irresponsible. His paper outlines eight policy recommendations based on data from various sources.

Key recommendations include reversing the yield curve through better inflation control and improved debt management practices. He stresses that without addressing the yield inversion, new bond issuances may fail or trade at steep discounts.

Dr. Atuahene also highlights the need for a credible fiscal framework in Ghana due to past budget discipline issues. He argues that lacking fiscal anchors has led to recurrent slippages in budget management.

On revenue mobilization, he advocates reforms to close the gap between Ghana’s tax-to-GDP ratio and sub-Saharan Africa's average of 27 percent. Proposed measures include taxing high-net-worth individuals and reviewing mining sector incentives.

He believes if Ghana matched SSA's average revenue ratio, it could have avoided many expenditure overruns and borrowed less money. The current revenue ratio of 16.7 percent is unsustainable and needs urgent attention.

The report also addresses corruption and public financial management improvements as essential steps forward. Recommendations include strengthening anti-corruption bodies and enforcing procurement laws more strictly.

Dr. Atuahene warns that corruption costs Ghana billions annually and undermines public trust and investor confidence significantly.

Another recommendation urges prioritizing concessional financing from multilateral institutions over non-concessional debt options due to upcoming domestic debt service obligations totaling GH¢150 billion over four years.

Concessional borrowing can provide necessary breathing room for government finances, according to Dr. Atuahene's analysis.

He cautions against rushing back into the domestic bond market without addressing underlying issues from previous defaults in 2022.

Rebuilding investor trust requires more than just policy statements; it demands real fiscal restraint and transparency in revenue management.

His paper has sparked renewed discussions among policymakers as Ghana navigates its IMF-supported recovery program.

While officials express optimism about declining T-bill rates, Dr. Atuahene’s analysis serves as a reminder of unresolved structural challenges.

Without tackling these root causes of Ghana’s debt crisis, re-entering the bond market could be ill-timed or even catastrophic.