Harare – The Reserve Bank of Zimbabwe is out in the market seeking to raise ZWL$30 million at its first public auction of Treasury Bills since 2012. Although the Government really needs the money, this seem to be a test of the market preparedness.
Over the previous years, the Government used to borrow from the banking sector through RBZ’s overdraft facility and private issuance of treasury bills to banks and insurance companies, breaching its borrowing limit.
Now under the IMF’s Staff Monitored Programme, one of the IMF’s quantitative targets is a ceiling on government borrowing from the central bank. The objective is to avoid the inflationary consequence of central bank borrowing which is supposed to boost demand.
Unrestrained government borrowings from banks and RBZ has to be closed in order to checker inflation. That would be an ideal approach.
The public auction of TBs is a first step in the right direction. However, with government domestic debt crowding out private sector borrowing, it is of interest to gauge the appetite of the banking sector on these treasury instruments.
Most banks have been reducing their exposure to the private sector opting to invest in sovereign instruments with loans to deposit ratio averaging below 40% down from the 80% in 2013.
Banks slowed on lending to the private sector as the government competed with the private sector for funding. Lack of quality borrowing clients in a difficult macroeconomic environment also dissuaded banks to lend to the private sector as the level of risk could not match with the prevailing interest rates.
In a statement, the RBZ said it is inviting commercial banks, building societies, POSB and IDBZ to subscribe to the treasury bills amounting to ZWL$30 million. “The bills are being issued by the government with a 91-day tenure. The purpose of the bills is to finance government programmes with yields open to tenders” the statement read.
Given rising inflation which is now at 176%, rising interest rates, high government domestic debt and falling real tax revenues, the government may struggle to raise cheap money in the domestic market.
Limited competing investable assets in the economy, may work as the only positive driving factor for TBs bids.
The TBs have special features of prescribed asset status, liquid asset status, tradable, tax exemption and acceptable as collateral for overnight accommodation by the RBZ. Bids are open from Wednesday July 31, 2019 at 08:00hrs and close on Thursday August 01.
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