Reserve Bank of Zimbabwe governor John Mangudya
THE Reserve Bank of Zimbabwe is set to reintroduce the auction system for Treasury Bills after finalising the operational framework.
RBZ Governor John Mangudya confirmed that all was now in place for the return to open market operations for government paper.
“There was a committee set up headed by the Ministry of Finance and Economic Development to come up with the operational framework. The terms of reference have been completed and we are just working on a few modalities but the system is expected to resume soon.”
Discussions around the re-introduction of the open market of the committee were mainly centred around the acceptable rates and whether banks should be allowed to bid in the primary market to allow the creation of a secondary market where TBs would then be sold to the rest of the market.
This comes as Government has, for the past couple of years, been issuing TBs to fund various economic programmes. The TBs that are in the market (believed to be under US$2 billion) are currently divided into five categories. These are;
1. Long term paper (between 10-15 years) under the Zimbabwe Asset Management Company.
2. Capitalisation funds for the RBZ, IDBZ and other state-owned banks
3. Debt Assumption Act (around US$1,4 billion)
4. Government Financing – to fund budget deficit
5. Input Programmes.
TBs have increasingly become the preferred investment instrument in a market where the stock market is currently subdued while returns on the money market are low. According to the latest monthly review from the RBZ for June, commercial banks held TBs worth US$1,27 billion against US$750,1 million the same period last year.
“TBs are a risk free investment because Government has been paying its dues. There is more damage in not paying so servicing the TBs has been top priority for us,” said Mangudya.
A return to the auction system guarantees a discernible yield gap, meaning all investors get similar returns at a coupon rate more affordable to Government. This is opposed to a scenario that is currently obtaining with private placements where individual investors are negotiating different rates.
However, there are fears that the open market might not be successful as the apex bank will come to the market with a defined interest rate and fails to raise the targeted amount of funds.
Mangudya said such a possible outturn can be carefully managed by starting with low thresholds of funds to be raised and gradually scaling up as market confidence builds.
Meanwhile according to the June RBZ review, net claims on government increased to US$1,94 billion from US$1,83 billion in May. FinX