‘TBs creating fictitious money’

HARARE – The Zimbabwean government has been warned against excessive use of Treasury Bills (TBs), which could collapse the local banking system as the government-backed paper is not backed by any physical assets.

A TB is a short-term debt obligation backed by a government with a given maturity, in most countries the promissory notes are issued with a maturity of less than one year.

Issued through a country’s central bank, TBs commonly pay no explicit interest but are sold at a discount, their yield being the difference between the purchase price and the par-value (also called redemption value).

The Parliamentary Budget Office (PBO) said TBs are also at risk of potential mark-downs next year as new accounting standards take effect.

“The TBs are creating more fictitious money than what is necessary. With commercial banks becoming increasingly fearful, and rightfully so, about the potential for TB default, banks have smartly preferred to hold onto physical US dollars, limiting withdrawals and international card transactions,” the organisation said in its half year report.

“TBs face further potential mark downs with the new accounting procedures under the IFRS 9 rules that will take effect on January 1, 2018, (IFRS 9 covers classification and measurement of financial liabilities and also addresses aspects of applying fair value option and bifurcating embedded derivatives),” the office said.

RBZ statistics show that, at current levels, TBs held by commercial banks are now unsustainably 1,7 times the level of bank equity capital, up from 1,3 times at the end of 2016.

As at March 31, 2017, Zimbabwe’s public debt stood at $11,6 billion or 82 percent of GDP, of which $7,5 billion or 53 percent of GDP is external debt while $4,3 billion, representing (30 percent of GDP) is domestic debt.

“Of the $7,5 billion external debt, $5,2 billion is in arrears. The external debt of the country has increased in the second quarter due to interest payments. On the other hand, the domestic debt has also increased due to the continued issuance of Treasury bonds to finance government expenditure.

“This leaves the country debt to a figure above $13 billion. Government has been increasing its reliance on the domestic market to finance the budget deficit and this explains why a large outlay of TBs worth $2,5 billion, are currently on the market,” the report read.