Treasury Bill Auction System set for Q4

28 May, 2019 - 12:05 0 Views
Treasury Bill Auction System set for Q4 Prof Mthuli Ncube

eBusiness Weekly

Tawanda Musarurwa
The Treasury Bill Auction System will be operational by the start of the fourth quarter of this year, Finance and Economic Development Minister Mthuli Ncube has said.

Treasury Bills (TBs) are negotiable instruments issued by Government through the central bank to finance the State’s short-term requirements.

But last year Treasury placed a moratorium on the issuance of the Treasury Bills (TBs).
And Minister Ncube said as a result of the surpluses that Government has been recording due to the implementation of austerity measures, there has been no need for the authorities to issue out TBS to finance the State’s short-term requirements.

“The budget balance for the period January to March 2019 was a surplus of $443,1 million, against a target of $78,2 million, indicating a major shift in the management of Central Government finances from deficits to surpluses. As a result, since January 2019, no Treasury Bills, nor the overdraft facility were utilised to finance the budget,” said the Minister.

This is a significant shift away from the past years when the financing of the deficit was largely achieved through domestic borrowing with the use of TBs and from the overdraft facility with the Reserve Bank of Zimbabwe (RBZ).

He added: “With respect to the implementation of the Treasury Bill Auction System, I envisage that this will now commence by the fourth quarter due to the recent measures announced in the Monetary Policy Statement. This will allow the markets to settle on the Treasury Bill market.

“The domestic debt stood at $9,2 billion down from $9,6 billion in December, 2018. This represents a $326 million decrease in domestic debt. The decrease in the stock of debt was on account of debt repayments with a minimal Treasury Bill issuance of $28 million for cash flow management purposes.”

The Treasury boss said recent TBs issuances amounting to $180 million were “for purposes of restructuring previous years’ maturing debt”.
Earlier figures from the Ministry of Finance and Economic Development indicated that around 50 percent of the TBs were currently being held in medium to short-term paper, while 26 percent had tenors of between 2,5 to 5 years.
The numbers also showed that 17 percent of the TBs have tenors of between 6 to 10 years, and the balance have a tenor of between 11 to 15 years.

And that TBs from the secondary market have coupon rates ranging from 2 percent to 5 percent with maturity periods ranging from one year to four years.

Although Treasury had since issued a moratorium on the issuance of the TBs by Government, the effects of the securities are yet to be fully felt as coupon payments on the TBs are being funded from the Government overdraft, a fact that was acknowledged by the RBZ governor Dr John Mangudya.

A coupon payment on a bond is the annual interest payment that the bondholder receives from the bond’s issue date until it matures.
“In terms of the TBs, the coupon rate needs to be paid from the overdraft. When those TBs mature, they hit the overdraft of Government.

When Government issues a TB, it has got its tenure and on maturity it then goes into the account of Government,” said the RBZ boss.
A number of banks and other financial players hold Government-issued TBs, as they had become the main debt instrument available in the market after Government converted its legacy debt into short-dated Government security.

Even though TBs are largely considered as the least risky of all treasury products since they are guaranteed by Government, some analysts opine that in an under-performing economy that is typified by high debt serving costs, TBs could pose some financial risks on domestic debt instrument holders.

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