Treasury Bills are back… as Govt enters market with ZWL$100m issuance

The Reserve Bank of Zimbabwe (RBZ) yesterday returned to the capital market with more Treasury Bills (TBs) to raise funds for government operations. With no budgetary support, the government’s appetite for the debt instruments has increased over the past few months against the backdrop of wage increase demands from the civil service and a request for funding of the upcoming summer cropping season.

The latest issuance of treasury bills worth ZWL$100m, the third in two months, has a tenure of 92 days. In August, the central bank floated a 365-day treasury bill worth ZWL$60m.

Earlier that month, the RBZ floated 91-day bills worth ZWL$30 million, underlining how the government is crowding out the private sector on the money market. This is contrary to sentiments expressed by Finance Minister Mthuli Ncube and his permament secretary Gorge Guvamatanga, who early this year vowed not to issue fresh TBs, which have cash-flow implications on the government, as part of the efforts to ensure macro-economic stability.

TBs can become a major source of economic vulnerability, analysts told Business Times yesterday. The interest rate on the latest TBs is calculated at an “open tender on yield basis”, with other special features including a prescribed asset status. The minimum amount to be invested is ZWL$1m per investor, and the number of bids are restricted to two per investor.

The target market for this issue is banks, asset managers, insurance, pension funds and other corporates. Offers opened yesterday and close today with allotment set to be done today as well. This TBs issue is likely to intensify debate over the government’s fiscal stance, given what Minister Ncube and Guvamatanga said early this year.

Well placed government sources told the Business Times yesterday that more TBs would be issued in the coming few months. In stable economies, TBs are considered to be one of the safest and go-to investment destinations because they are generally considered risk free and liquid due to their backing by governments.

But in Zimbabwe, the government has been struggling to pay off maturing TBs, a situation that might create problems for TB holders. A few years ago, the issuance of TBs became highly controversial as the government piled up billions in debt through the instrument while resorting to operate on a central bank overdraft facility to bridge its budget deficit.

Interestingly, the new TBs come at a time when the government, since June this year, has been negotiating with market players to roll over TBs worth ZWL$2.2bn maturing this year. The possible default on the payment of maturing TBs is due to limited financial resources, making the risk of buying the new ones a very high one. Interestingly, TBs have been the biggest vehicle for state funding since 2012 as a stop gap measure for a government which no longer had access to investments from international financial institutions due to its legacy debts. Z

imbabwe, once one of Africa’s most promising economies, suffered decades of decline under the late President Robert Mugabe. The country has not been accessing fresh external capital for a long time due to economic sanctions imposed by the West and the government’s failure to clear debt arrears to international funders.

Defaulting on its external debt resulted in the country being shut out of international capital markets. Government then started depending heavily on the issuance of TBs and RBZ overdrafts. The country has persistently run ever widening budget deficits, funded mainly through the issuance of TBs and borrowing from the central bank, a move which has also fueled inflation.

Analysts said discontinuing the issuance of TBs would save taxpayers money. Investors can buy TBs from the central bank, which raises money to meet the government’s day to day financial obligations or pay its creditors. They may buy the TBs, which normally have a tenure of between 91 days and three years, from secondary market at discounted rates. It is a negotiable instrument from one party to the other.


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