CBZ Holdings says the government has honoured its obligations to all Treasury Bills (TBs) the financial services group is holding onto mature.
BY TATIRA ZWINOIRA
In emailed responses to NewsDay, CBZ Holdings acting chief executive officer, Peter Zimunya said the group expects government to continue honouring its obligations.
“To date, the government has consistently honoured all maturities, and it is our view that they will continue to honour their obligations. As you are aware, all financial institutions have supported the government in this manner and we advise that you engage other players for their views,” he said.
“Governments always raise funds through different mechanisms, chief among them being Treasury Bills, for the purposes of funding both developmental and operational expenditure.
“Our own government has issued Treasury Bills for various purposes, including supporting the productive sectors such as agriculture, which is a critical action plan for the government, as this ensures that the TBs become self-liquidating as the productive sectors increase output.”
As at June 30, CBZ Holdings reported holding $814,5 million worth of TBs, with other financial institutions also increasing their TBs stock.
So far, Treasury has issued $2,5 billion worth of TBs into the market.
Government has been issuing out these short-term debt instruments in order to borrow money locally to finance budget deficits, as revenue generated is inadequate to meet rising expenditure.
Since TBs have maturities ranging from an average of six months to five years, this would allow Treasury to pay back these maturities at a later date with interest.
In its 2017 first half budget performance and outlook report, the Parliament Budget Office said TBs had financed the budget deficit of $533 million incurred in the period.
Analysts have raised concerns that with domestic debt already at $4,3 billion as at March 31, representing 30% of the gross domestic product, the continued issuance of TBs was exposing the financial sector to greater risk.
That coupled with the fact that government debt is already around $13 billion with budget, trade and account deficits, questions around government’s ability to honour TB maturities have been consistently raised.
Analysts say government’s borrowing from the domestic market was crowding out lending to the private sector.
Financial expert, Persistence Gwanyanya said while the Reserve Bank of Zimbabwe could print TBs, they could not print United States dollars.
“Printing money which is not backed by production causes inflation. This is where we are. We printed more than $2 billion of TBs since 2016 to sort out legacy issues. This sparked demand for foreign currency in a country which was already suffering from severe forex shortages,” he said.
Gwanyanya said the concomitant effect of this was a wave of price increases.