Treasury Bills rule the roost


TREASURY Bills have become the main debt instrument available in the market after government converted its legacy debt into short-dated government security, a financial security expert has said.


Persistence Gwanyanya told NewsDay that financial securities fall into two categories: debt and equity instruments.

“Equity instruments in Zimbabwe today comprise of mainly stock traded on the Zimbabwe Stock Exchange (ZSE). Treasury Bills are the main debt instrument available in the market following the conversion of part of government legacy debt into TBs,” he said.

“There are also a number of cases where bonds and debentures were issued to raise funds from the market, albeit with limited success in most cases. Prior to dollarisation, our financial markets used to be more active with a wide range of financial instruments traded.”

Other financial securities in Zimbabwe include bankers acceptances, repurchase agreements, call loans and deposits and commercial paper among others. A number of these instruments have become unattractive to investors following dollarisation largely due to tight liquidity conditions.

zim stock exchange

This follows the lack of a lender of last resort and limited monetary policy autonomy or independence, which impacts negatively on the moneyness (the ease with which a financial instrument can be converted into money at low cost), convertibility, predictability and thus attractiveness of financial instruments, he said.

Predictability of cash flows, Gwanyanya said, relates to mainly interest, dividends, coupons and principal, while convertibility refers to the ease with which an instrument can be converted into another class of financial security.

“One way to improve the attractiveness of financial securities in Zimbabwe is to give them prescribed asset status, as the case with most TBs issued by government. Successful resuscitation of the RBZ’s lender of last resort function and interbank market will go a long way in improving money market activities,” he said.

Another facility used to guarantee financial security is the $200 million Afreximbank guaranteed facility, which has revived the interbank market.

Gwanyanya said measures to boost confidence in the financial service sector remained key to efforts meant to increase trade in the financial markets. Thus, measures to improve the political environment, policy consistencies and predictability have remained pivotal in attracting the required liquidity infinancial markets, he said.

He said the “tight liquidity conditions obtaining in the local market meant the increasing need to attract foreign capital, making the investment environment more important than before”.