Questions over AMA bills

ANALYSTS have raised concern over public debt sustainability after the Agricultural Marketing Authority (AMA), a wholly-owned State institution, announced it was issuing commercial bills of up to $75 million to finance the purchase of maize.


Others questioned the sustainability of purchasing the grain at double world market prices using borrowed funds.

The AMA Bills, with a tenor of 360 days and interest rate of 7% per annum, are guaranteed by government, which effectively increases the debt securities on government books.

As at the end of June this year, government securities comprising Treasury Bills (TBs) and bonds amounted to $2,86 billion.

Economists have warned that the expansion in government securities for consumptive purposes would expand the stock of public domestic debt and further increase money supply and create inflationary pressures.

Last year, AMA floated $80 million worth of bills to finance the buying of grain for the 2017 season at an interest rate of 7,5% per annum and a tenure of 360 days.

Financial expert Persistence Gwanyanya said government instruments should be used for production only.

“There is a lot of liquidity floating all over the country and we want that liquidity to be put to productive use. As long as the facility (AMA bills of $75 million) is given to support production and productivity, it is fine. We have seen the increased appetite from banks of bonds and TBs. So, take-up is undoubted,” he said.

“They are going to be taken up because of the increase in appetite by the banks for holding government paper. But what is important is for that money to be put into productive use. We want to suck out liquidity from the economy which is causing currency instability.”

Government has used TBs to finance its budget deficits and Command Agriculture since 2016. In 2016 alone, Government issued TBs worth $2 billion to fund Command Agriculture, including grain purchases at above-market prices.

“I am hoping very much that the new Ministry of Finance completely revises the agricultural policy to make the raising of this money unnecessary because the government is paying twice the price for maize, wheat and soya beans,” economist John Robertson said.

“These prices are artificially high and in order to fund those prices they need to raise money which is way above the market values of these crops.

“The funding of the purchases is actually beyond the resources of the government. So, they need to borrow. But the borrowing requirement comes from another problem which is the choice of prices. We have to abandon the exceptionally high prices for these products because we are still trying to use an internationally-traded currency to pay for internationally traded commodities.

“We have to settle on the prices paid on international markets for these commodities and we should not believe that we have the right or ability to pay double the prices for our grain crops so that is what has got to be fixed.”

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