Govt explains latest treasurey borrowings

George Guvamatanga

HARARE – The issuance of Treasury Bills that has seen Government come to the market wanting to raise close to $1 billion as of today, is not a sign of national coffers running dry, but is instead part of initiatives announced in the 2021 National Budget Statement, a senior government official has said.

Government, which early this month came to the market looking to raise $400 million through the issuance of Treasury Bills by the central bank, is back in the market today looking to raise $500 million.

The funds are part of budgetary support that was announced by Finance and Economic Development Minister Mthuli Ncube in the 2021 National Budget Statement.

The 2021 Budget forecast a deficit of $30,8 billion or -1,3 percent of GDP. To cover the deficit, Minister Ncube announced a domestic borrowing plan which would see Government issue TBs worth $3,083 billion in the first quarter of the year to March. 

According to the plan, there were plans to raise $1 233 billion through issuance of 180-days TBs, and a similar amount through 270-days TBs as well as $617 million through 365-days TBs.

But with less than half of that having been raised, it could be a sign that Government coffers are performing better than expected and there is no need to raise as much as planned. 

Secretary for Ministry of Finance and Economic Development, George Guvamatanga, said apart from the more than $10 billion that is held at the central bank, government also has deposits with local banking institutions and the total is in excess of $40 billion.

He said while the TB borrowings are as planned in the 2021 National Budget, Government was not necessarily in need of money, but was also using the TBs to establish the yield. 

The Insurance and Pension Commission shared the same sentiment and urged its members to participate through subscription of the TBs.

In a circular to members, IPEC said participation and uptake of the Treasury Bills is key in contributing to the “pricing of the financial instrument as well as in ensuring compliance with the minimum prescribed asset requirement”.

While the previous Treasury Bills had a 270-day tenure, the latest issuance is for 365 days. 

A combination of TBs with different tenure will help in discovering the yield curve. 

A yield curve, which is simply the difference between short and long-term interest rates, is a way to measure bond investors’ feelings about risk.  

The 270-day TBs are reported to have attracted an interest rate of 19 percent and it would be interesting to see what sort of interest rates will the 365-day TBs attract. 

Under normal circumstances, rates should be higher for longer term debt because of the additional risk involved with money that is tied up for a longer time. 

TB buyers would want to be paid more interest (yield premium) when their money is committed for a longer period, as opposed to short term.   

The yield curve also gives insight into what the totality of all investors see within the economy.  

If the difference in interest rates for the two instruments comes out steep, it will suggest the potential for future economic growth. 

But if it comes our narrow or flat, it would suggest the market does not see future growth opportunities and is willing to commit money in the future for the same or similar rates that are available today.  

Experts say the yield curve is important for two principle reasons. 

Firstly, it gives insight into what the totality of all investors see within the economy. 

Secondly it influences the ability of individuals and businesses to obtain traditional bank loans. 

Higher rates signal expensive borrowings, while the reverse is true for lower rate or yield premiums. 

Mr Guvamatanga also took the opportunity to comment on the developments on the exchange rates that are being used in the economy.

He said the formal market including the auction system was trading as much as US$6 billion, leaving less than 10 percent to be traded on the parallel market. 

He said it was simply greediness for market participants to use rates determined by a small section of the market.

Apart from what has traded on the foreign currency auction system, banks have also been trading foreign currency for their customers and getting higher margins but mostly within the RBZ stipulations. – Herald