GOVERNMENT plans to scale down on Treasury Bill (TB) issuance to make way for longer-term debt instruments and issue infrastructure bonds in this quarter, Finance minister Mthuli Ncube revealed on Monday.
by FIDELITY MHLANGA
The move is intended to hold down further growth in government domestic debt, raise money for long-term projects, promote greater private sector participation in infrastructure investment and deepen the country’s capital markets.
Ncube said this in a statement issued just after the presentation of the mid-term monetary policy statement.
“You will kill two birds with the same stone,” Ncube said.
“You raise money and you also deepen the fixed income market. We need a fixed income market to support the equity market.”
Zimbabwe’s bond market collapsed during the hyperinflation era and is yet to recover.
Limited access to alternative financing is one of the factors often cited for stifling private sector financing.
Ncube revealed that TBs had ballooned to $7,6 billion from $2,1 billion in 2016. Issued on a tenor of 365 days and to finance the national budget deficit and off-budget spending, the TBs have become an “albatross” around Treasury’s neck, heaping unsustainable debts on the public and expanding the mismatch between cash dollars and real time gross settlement (RTGS) balances, currently driving inflation and the parallel market for currencies.
As an interim public debt and fiscal management measure, TBs would only be sold through an auction system, which would also promote market-driven pricing of debt instruments.
Ncube said the coupon rate on the short-term debt instruments was too high and would result in a public debt overhang.
The deficit financing activities are also seen as having an adverse crowding out effect on the private sector, which would stifle private sector investment and economic growth.