Zimbabwe is expected to start auctioning Treasury Bills in the second half of 2019 as a way of financing its fiscal deficit that according to the 2019 National Budget was expected to come out at $2,8 billion.
However, unlike in the past, where Treasury Bills were used to fund unbudgeted spending, as revealed by Finance and Economic Development Minister Mthuli Ncube in his Transitional Stabilisation Programme, the new TBs will only be issued out to fund the budgeted fiscal deficit which is expected to close 2019 at about 4 percent of GDP compared to 7,1 percent in 2018.
Zimbabwe currently has a huge stockpile of TBs of approximately $3 billion most of which were issued for recapitalisation of public enterprises, settling Government obligations and RBZ debt assumption.
Part of the TBs were issued to cover the financing gap of $847,9 million, while the bulk were used to finance unbudgeted expenditure such as command agriculture, grain procurement, inputs support to the vulnerable households and various Government creditors including ZESA, NSSA and ZINWA, among others.
The TBs were also issued at a treasury or RBZ determined interest rate of between 5 and 10 percent but going forward, a co-ordinated approach in the issuance of TBs will be used in order to ensure adequate profiling of the debt instruments.
Unlike in the past, where TB issuances had assumed the proportion of a surrogate budget, issuance will now be at market interest rates.
According to the IMF, in its report for the Staff Monitored Programme, which it has agreed with Government, the financing of the RTGS$2,8 billion fiscal deficit in 2019 relies mainly on issuing debt in the domestic market as the country is not yet eligible for World Bank and IMF funding as it still owes $13,6 billion as at September 2018.
“The programme targets raising 3,5 percent of GDP from commercial banks, which is not expected to crowd out lending to the private sector given banks’ excess liquidity and weak demand for credit from the private sector,” said the IMF in its SMP report.
“Issuance is to be at market interest rates, with auctions of TBs expected to start in the second half of 2019, which will put pressure on the government interest bill.
“Non-banks — insurance, pension and asset management firms — are projected to contribute about 0,5 percent of GDP in budget financing in 2019, reflecting in part a doubling of the minimum asset ratios these institutions are required to hold in government securities,” said the international lender.
Meanwhile, the IMF believes the country’s budget deficit might be higher than the budgeted $2,8 billion due to external shocks.
Factors beyond the authorities’ control include a worse-than-envisaged agricultural season, exacerbating risks of poverty and social discontent, and a slow recovery in confidence that delays a resumption of economic activity, particularly in export industries like mining.
The outlook also does not factor in a significant macroeconomic impact from Cyclone Idai or the drought.
The international lender said: “With limited access to external financing and the very low level of international reserves, the authorities’ room for manoeuvre is very narrow.”
“There are also significant implementation risks of the monetary and exchange rate reforms, as well as addressing governance and corruption weaknesses, which could adversely impact the attainment of SMP objectives,” it said.
Similarly, spending pressures, particularly on wages, social support, subsidies to SOEs and agriculture and financial sector bailouts could jeopardise fiscal goals.