NDAMU SANDU
The rising inflation has routed Treasury Bills (TBs) yields making them unattractive at a time there are few options to preserve value, financial institutions have said.
Government reintroduced TBs last year via a public auction system after dumping the private placement as it moves for a market-oriented system which improves the process of price discovery and better pricing.
The borrowing from the domestic market comes at a time government revenues are not enough to meet its growing needs.
In recent financial statements, companies holding the investment securities said inflationary pressures have affected the yields.
NMB Holdings said its investment securities (Treasury Bills and Bonds)
decreased to ZWL$107 166 155 as at December 31, 2019 from ZWL$728 294 724 as at December 31, 2018 mainly due to some maturities of government stock as well as the effects of loss of value for monetary assets due to hyperinflationary pressures.
“The bank has set maximum limits for investment securities in order
to ensure that most of the funds are channelled towards the productive sectors of the economy,” it said.
Old Mutual Zimbabwe board chairman Johannes Gawaxab said in a statement accompanying the financial results for 2019 that average
yield for TBs of 15% was unattractive compared to the level of inflation.
“In real terms market yields closed the year with a negative yield of 81.5%.
Despite efforts to protect the value of our customers and the business, the weak performance in real terms of the investment markets meant that they were unfortunately very limited options through which this could be
achieved,” Gawaxab said.
As at December 31, 2019, the group investment in TBs was down to ZWL$136.6m from ZWL$1.5422bn in 2018.
Government has turned to debt instruments to fund its capital projects and
social spending as it has no budgetary support. In addition, Zimbabwe cannot borrow from international financial institutions due to external debt of over US$10bn.
Such limited financing options have forced the government to borrow from
the domestic market and the central bank to plug the hole.
Its borrowing from the central bank has been restricted to 5% of the previous year’s government revenue. Section 11(1) of the Reserve Bank Act stipulates that borrowing from the Reserve Bank shall not exceed 20% of the previous year’s government revenues.
Critics say the borrowing from the domestic crowds out the private sector as banks tended to go for TBs instead of lending out to productive
sectors under the comfort that the government will not default.
Finance and Economic Development minister Mthuli Ncube is reforming
government finances and has resolved that Treasury will seek to finance government’s socio-economic development programmes by use of
instruments that “crowd in” the private sector “including public-private partnerships or government guarantees to financial institutions”.
The TBs that have been issued by the government have special features including prescribed asset status, liquid asset status, tradable, tax exemption, acceptable as collateral for overnight accommodation by the RBZ and allotment will be at a weighted average rate.
The target market has been banks, asset managers, insurance, pension funds and other corporate.
Last year, Zimbabwe suspended the publication of annual inflation
until February after the government had outlawed the multicurrency regime and restored the Zimbabwe dollar as the sole legal currency.
Annual inflation has been on the rise hitting 785.55% in May from 765.57% in April.
