Imara cautions banks on TBs

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HARARE – Banks have been cautioned on subscribing to the Government’s US$5 million Treasury Bills (TBs) given uncertainties around the future of the country’s currency regime.

Zimbabwe has been using the U.S. dollar as a parallel currency to the domestic currency since 2020 after the authorities legalised its use until 2025.

Before the adoption of the Zimbabwe dollar as a mono–currency in June 2019, the US dollar was a legal tender since 2009 after the country adopted a basket of multi-currencies at the height of hyperinflation.

The multi-currency regime was generally referred to as dollarisation given the dominance of the US dollar.

While the domestic transactions are now mostly in U.S. dollars, the Zimbabwe dollar is still used, but less widely accepted.

In case of the currency regime changes, the value of the bill, the first in many years, could be significantly reduced.

“As we write, Government, through the RBZ, has announced the issuance of US dollar Treasury bills for the first time in many years,” Imara Capital says in a recent advisory note.

“This will be to raise US$5 million so it will be interesting to see at what yield to investors they are issued at, and indeed who buys them.

“In 2016/2017 they were predominantly bought by the banks, utilising US dollar deposits of the public, but in the end, these bills were never repaid in US dollars but were converted to Zimbabwe dollars in 2019 and became a legacy debt of the RBZ and later the Government.

“One would hope that the bankers are now wise to this, or at least those not influenced by the authorities.

“That said, the lack of trust in the banking system by the public, taken together with the destruction of banking sector balance sheets by the devaluation of the Zimbabwe dollar, suggest that in real terms, the banks, like the pension fund industry, have little capacity to fund Government or the private sector in any meaningful way anyway.”

Imara says the banks have been shifting their asset base toward US dollar lending. In an update during the year, the RBZ confirmed that foreign currency-denominated loans constituted 94 percent of the banking sector loan book as of June 2023 – implying a very negligible appetite for the Zimbabwe dollar.

This is the first time that the RBZ has issued treasury bills in US dollars since 2019.

The treasury bills will have a tenor of 90 days and will be open to subscription by financial institutions, corporates, and individuals. The minimum subscription amount is US$5,000 for financial institutions and corporations and US$50,000 for individuals.

The RBZ has said that the proceeds from the treasury bills will be used to finance Government operations and to support the foreign exchange market.
It remains to be seen how successful the RBZ will be in issuing the US dollar treasury bills.

The Government has said that it intends to eventually abandon the US dollar, but it has not yet announced a timeline for doing so.

Last week, President Mnangagwa indicated that he wanted to see the Zimbabwean dollar becoming the sole legal tender. However, he acknowledged that the Government needed to address some underlying economic fundamentals before this could be achieved. – Business Weekly