eBusiness Weekly
Tawanda Musarurwa
HARARE – Treasury will next year introduce a secondary bond market, which will help restore symmetry in the movement of Treasury Bills (TBs).
This comes as Finance and Economic Development Minister Mthuli Ncube has said they will curb the issuance of the debt instruments by auctioning them.
Since 2016, the Government has been issuing TBs on the bond market to settle its obligations.
But the introduction of a secondary market – also known as the ‘aftermarket’ or ‘follow on public offering’ – will see the previously issued financial instruments being traded.
“Government will from January 2019, revive the issuance of Treasury bills through an auction system as part of monetary policy operations to influence liquidity developments in the economy.
“In addition, Government will under the Transitional Stabilisation Programme, revive the issuance of bonds through the development of a secondary bond market, beginning 2019, “according to an abridged version of the short-term economic policy presented by Minister Ncube.
Importantly, introduction of the secondary market will help ‘sanitize’ the Government-issued paper, which some observers say has been crowding out private sector lending.
In a paper released earlier this year, stockbrokers IH Securities highlighted that local banks were now leaning towards TBs at the expense of private sector lending.
“The marginal increase in bank loans from $3,69 billion in 2016 to $3,8 billion in 2017 versus an increase in TB stock of $1,75 billion from the last recorded figures in 2017, in our view reflects a squeezing out of private sector credit.
“Banks now have a preference to TBs that earn steady interest, are deemed to be more secure and are easier to get as opposed to lending out to the private sector, particularly during this time when the economic environment has not been favourable to most companies.
“Excess liquidity caused by coupon payments and the maturities of TBs during 2017 also created a stock of RTGS dollars inadvertently chasing ‘safe haven’ assets which included equities and naturally real currency which drove parallel rates upwards,” said IH Securities.
A secondary market allows for securities to be transferred from one investor to another, and they are important as they interlock an investor’s preference for liquidity with the borrower’s need to be able to use the capital for an extended period of time.
The stock of outstanding TBs as at mid-year amounted to $6,7 billion, with a maturity value of around $8,3 billion.
Between 2017 to June 2018, the Government issued TBs and bonds amounting to $4,3 billion to cover the financing gap.
And of the $4,3 billion issued, $2,9 billion accounts for 2017 issuances, while the remaining $1,3 billon was issued during the period to June 2018.
Official figures show that the TBs to gross domestic product (GDP) ratio had risen to 35,6 percent as at end of August 2018 from 4,4 percent in 2014.
