Finance and Economic Development Minister, Mthuli Ncube, in his budget statement last week, said the country plans to borrow in order to fund part of its 2023 budget deficit.
The debt will be sourced from various platforms including treasury bills, bonds, external debt, guarantees as Treasury seeks to raise $575,5 billion in 2023 financial year.
Mthuli said; “The 2023 National Budget has an overall deficit of $336,8 billion (1,5 per cent of GDP) and total financing requirement of $585,5 billion, which includes amortisation of loans and Government securities, amounting to $248,6 billion.”
Treasury seeks to raise $82,2 billion through treasury bills issuances, $95,2 billion via treasury bonds and external loan disbursements equivalent of $398,2 billion.
Analysts have said this is normal practice all over the world that budget deficits are funded through borrowings. They have, however, settled on the issue of transparency and staying within the stipulated borrowing limit which will make repayment of the debt manageable.
Treasury said, in 2023, the overall annual borrowing limit has been kept at the same level as in 2022 at 5,75 percent of GDP, which is derived from the projected total financing requirements, public entities project financing and private sector financing.
The gross issuances of treasury securities include the US$ denominated bonds of US$100 million to be issued in tranches through the Victoria Falls Securities Exchange (VFEX) for infrastructure development which include, roads rehabilitation and irrigation infrastructure.
According to the Treasury chief, the projected tenors of the US$ denominated bonds are 3 to 7 years.
“This is only just the beginning and going forward the government will be launching additional bonds.
“We also expect other public sector entities to do the same on the back of a government guarantee,” said Ncube.
In April this year the minister held a meeting in Washington DC with international investors to see if they were keen to participate in the US$100m bond.
Economist, Xavier Chingora said; “The minister is on record saying the bonds would be issued to cut borrowing costs and develop capital markets, with the specific goal of creating the Victoria Falls Offshore Financial Services Centre to attract more foreign investment.
“So to be fair, the country needs to be in good books in repatriating interest gained as well as international proceeds and avoid another blocked funds situation if they need these bonds to be a success.”
Treasury said, private sector financing is going to be considered in 2023 through guarantees for the Horticulture and Industry Re-tooling, from the SDRs allocations.
External loan disbursements of US$418,5 million which is an equivalent of $398,3 billion in local currency are projected in 2023.
Treasury said external funding will be through a pipeline loan from the Afreximbank amounting to US$400 million. The pipeline loan from Afreximbank will go through the approval processes, including ratification by parliament.
Economist Gladys Shumbambiri said; “Obviously the hope is that the current stable macroeconomic environment, will rule in 2023, with single digit month-on-month inflation and stable exchange rate. This is then expected to enhance the uptake of medium to long-term government securities by investors.”
Mthuli weighed in by saying; “The main policy thrust is to ensure the development and deepening of the domestic debt market by continued use of the treasury bills auction system for price discovery, as well as enforcing compliance of the prescribed asset status by the pension and insurance companies.”
According to the debt report, as at end September 2022, the total stock of new borrowing stood at 2,90 percent of GDP, against the approved 2022 overall annual borrowing limit of 5,75 percent of GDP.
The borrowings consisted central government debt of treasury bills worth $33 billion and a US$252 million revolving loan equivalent to $157 billion local currency, for the Harare-Kanyemba Highway. The central government also got US$15 million equivalent to $9.3 billion in OFID-SACP loan.
Guarantees to state owned enterprises (SOEs) constituted 1 percent of GDP and were done by IDBZ which borrowed $500 million, AFC Holdings which had a debt of $101,2 million. Other SOEs to be guaranteed by treasury were ZETDC $13,5 million and ZINARA which borrowed $4,6 billion in the period.
Guarantees to the private sector constituted 0.0037 percent of GDP, which accounted for the guarantee issued to Sable Chemicals Industries.
Shumbabiri said Treasury needs to continue with the prudent borrowing stance which has made government desist from going to the central bank for an overdraft. – Business Weekly