BY FIDELITY MHLANGA
The Zimbabwe government has for the past two months sought to raise $490 million via public Treasury Bills (TBs) auction to finance its activities with analysts warning the cash-strapped Treasury not to squeeze out financial institutions and unsustainably raise money supply.
This comes after the central bank issued $300 Treasury Bills yesterday to finance numerous activities, a week after the apex bank issued public auctions of the sovereign paper to raise $100 million.
The TBs auction system resumed this August, with two auctions carried out in that month which were oversubscribed. The first and second TBs auctions raised $30 million and $60 million, respectively.
According to the RBZ notice yesterday, investors are restricted to a maximum of two applications, of a minimum $1 million each.
“The Reserve Bank of Zimbabwe (RBZ) hereby invites financial institutions including commercial banks,building societies, POSB and Infrastructure Development Bank of Zimbabwe to subscribe to Treasury Bills amounting to three hundred million (ZWL$300 000 000),”RBZ said.
The offer opened yesterday and closes today.
While the three previous auctions had a 90-day tenure, the current TBs have 365 days tenure and has open tender on a yield basis.
But economist John Robertson said government was giving banks a raw deal as there will get no meaningful rate of return due to ravaging inflation.
“Banks are releasing money at a low price. Banks are lending depositors’ money. For me it’s an unfair arrangement. They are exploiting banks. When they give the banks their money it will be reduced in value,” Robertson said.
“We are likely to have a high rate of inflation by September next year when the tenure lapses. If the rate of return has been as low as it was, how much will banks get out of this?”
Research shows that although TBs are considered to have very low free credit risk, they are affected by other types of risk, interest-rate and inflation risks.
Previous over-issuance of TBs created fiscal imbalances threatening the financial sector, reflected through cash shortages and distortions in the foreign exchange market.
Economist Prosper Chitambara warned government on increasing money supply, saying this will worsen inflationary pressures.
“It’s a big concern in my view. The International Monetary Fund highlighted that their rate of money supply growth has been increasing unsustainably at about 38% in an environment where the economy is shrinking,” Chitambara said.
He said the move was symptomatic of government failure to sufficiently generate money via tax revenue.
“It shows an appetite to borrow and consumption is high. We need to change the course. This is a major concern; too much money chasing too few goods. It is also worrisome that government is mobilising resources for recurrent expenditure. Also government capacity to do domestic mobilisation of resources through tax revenue has been emasculated by too much informalisation.”
Prior auctions were held in secrecy, and as such, government instituted an open market borrowing to improve transparency on its domestic debt.
The huge quantity of TBs issued during the period 2017 to June 2018 had posed a burden to the fiscus in terms of both interest and principal payments and in some instances it caused a situation where the TBs were being reduced at absurd rates in the secondary market, hence undermining market confidence in government securities.
During the period 2017 to June 2018 government issued Treasury Bills and Bonds amounting to $4,3 billion to cover the financing gap.
The stock of outstanding Treasury Bills as at June 2018 is $6,7 billion, with a maturity value of around $8,3 billion.