/ 1 March 2013

Zim: Treasury bills on the cards again

Zim: Treasury Bills On The Cards Again

The country's cash-strapped government is to issue treasury bills during the first half of this year, despite previous attempts to mobilise cash being snubbed by domestic banks.

The snub courted the ire of Finance Minister Tendai Biti and Reserve Bank governor Gideon Gono, who both expressed disappointment at the level of support from local banks, particularly foreign-owned banks, which they accused of sabotaging the money market instrument.

Both Gono and Biti consequently threatened to withdraw their support for the big banks – British banks Barclays and Standard Chartered and South African banks Stanbic and MBCA, which is owned by Nedbank – against the indigenisation demands by the minister of youth, indigenisation and economic empowerment, Saviour Kasukuwere.

Two highly placed treasury officials said the finance ministry would now be “heavily involved” in the issuance of new treasury bills after the banks indicated they were averse to the instrument because of the capital level of the Reserve Bank, as well as the fact that the government was one of the biggest bad debtors on the market.

The banks have been calling for higher returns on government treasury bills, citing a high default risk, the short-term nature of deposits in Zimbabwe as well as high borrowing costs from offshore suppliers of credit lines. Treasury bills were re-introduced under Zimbabwe's hard currency regime in October last year, four years after the last issue in 2008 under the domestic currency, but they all flopped, with only one issue enjoying marginal success.

Biti indicated last year that the government wanted the treasury bills to be instrumental in determining the reference interest rate for the money market.

“They are working on the bills, but I don't see the government or the central bank forcing rates on banks. The IMF [International Monetary Fund] would not be agreeable to any form of price controls,” a treasurer with a British-owned bank told the Mail & Guardian.

Assurance to financiers
Zimbabwe is trying to establish a good track record with the IMF to lay the ground for debt forgiveness and re-establish relations with international financiers.

Whereas the government previously just instructed the Reserve Bank to issue treasury bills on its behalf, the M&G understands from treasury officials that a treasury bills issuance committee comprising treasury and Reserve Bank officials has been put in place to determine the amount to be raised, the tenor of the treasury bills, as well as the timing and the cut-off interest rate.

Allotments to all participants in the tender will be based on the weighted average interest rate, rather than rates prescribed by bidders.

But one bank chief executive said he expected the bids for any treasury bill tender to be conservative.

Biti has reportedly assured bankers that he would personally ensure that the treasury bills were fully redeemed on maturity to avoid the perception of the government being a bad debtor.

But the bankers are likely to remain unsettled, as the elections scheduled for July this year could usher in a new government and a new finance minister.

Tendai Biti, the secretary general of the Movement for Democratic Change, is finance minister in a power sharing pact that gave the MDC economic portfolios as the party was seen to have the ear of international financiers required to inject money into the struggling economy.