Treasury to issue US$100m bonds on VFEX

FINANCE and Economic Development Minister, Professor Mthuli Ncube, says Treasury will issue out US$100 million worth of Government Bonds on the United States dollar-denominated Victoria Falls Stock Exchange (VFEX) during the first quarter of 2022 as part of deficit financing.

VFEX is a subsidiary of the Zimbabwe Stock Exchange (ZSE), launched late last year as part of efforts to attract global capital, while helping restore foreign investor confidence in Zimbabwe’s capital markets and help companies raise capital in foreign currency.

In his 2022 National Budget, Mthuli said the bonds will be issued to reduce the cost of borrowing and deepen the capital markets, with a particular objective of developing the Victoria Falls Offshore Financial Services Centre aimed at attracting foreign capital.

“The bonds will be issued to complement Government resources needed for the rehabilitation of roads, upgrading and equipping public healthcare facilities, as well as for investments in irrigation infrastructure,” he said.

The Minister said the 2022 gross financing requirement is projected at $146,8 billion which will be financed through the issuance of Government securities, utilisation of
SDRs allocation and external loan disbursements.

The country received the equivalent of US$961 million in Special Drawing Rights (SDR) from the International Monetary Fund, part of US$650 billion the IMF is distributing to its members.

On domestic borrowing, he said the Government will continue to issue Treasury Bills through the auction system for competitive pricing, as well as to improve accountability and transparency.

“The projected stable macroeconomic environment is expected to encourage uptake of medium to long-term Government securities by investors,” Mthuli said.

He noted that the Government has appointed the Infrastructure Development Bank of Zimbabwe (IDBZ) and the African Export-Import Bank (Afreximbank) as the Joint Lead Arrangers/Financial Advisors for the US$ bond.

“To enhance the credit structure of the US dollar denominated Government bonds, Treasury will establish a dedicated Sinking Fund to ring-fence the identified carbon tax revenue streams for the repayment of the US$ Government bond,” the Finance Minister said.

In addition, he said Treasury has also requested for a payment guarantee from Afreximbank given that Afreximbank has a favourable credit rating of “BBB”, offers a wide range of trade financing programmes, guarantee products and sovereign and corporate advisory services that support the expansion, diversification, promotion and development of intra Africa trade and access to African trade, financial and capital markets.

Mthuli said cognisant of the statutory borrowing requirements, the current high debt overhang and debt sustainability analysis under the National Development Strategy 1 (NDS1), the 2022 overall annual borrowing limit is set at 5,75  percent of the Gross Domestic Product (GDP), which is derived from the budget deficit financing requirements, amortisation of loans and securities and public entities project financing.