Bills ignite money market

confidence on the money market and reduce the cost of borrowing.
Re-activation of long-term financing would stimulate activity, provide depth for market trading and increase lending to the private sector, analysts predicted.

The bond, to be underwritten by CBZ Bank, will be the first facility to be floated this year with a 270-day tenure. It promises to have ready takers.
In a statement, AMA said the offer opens and closes on Thursday this week.
Analysts said the tender would be a success because it was being underwritten by a bank with the right capacity. Companies have been surviving on short-term financing of between six months and 12 months at between 15 and 30 percent interest a year.

“Basically, the revival of long-term paper instills confidence in a market dominated by short-term financing,” said one analyst.
“The market can now afford to finance bigger projects because there are investors interested in the long-term paper.”

Bills are part of money market instruments used to raise funds.
Zimbabwe’s money market has remained depressed due to lack of instruments, poor liquidity and reduced confidence.

In his last budget statement, Finance Minister Tendai Biti said to make these instruments attractive to investors, Government would grant them special features, such as prescribed asset status, tax exemptions and liquid asset status.

Last year Agribank and ZB Bank launched US$10 million and US$30 million respectively, 360-day bonds in support of the financing of tobacco, livestock production, and other 2010/11 summer cropping season requirements.

Government has since advanced US$7 million to the Reserve Bank of Zimbabwe as the lender of last resort but the amount is not enough to cover the entire market, which needs about US$2 billion.
This amount, although small relative to the required resources, was expected to stimulate inter-bank activity and facilitate increased advances of credit by banks.

Zimbabwe faces a serious liquidity crisis following a decade of economic instability, which saw its gross domestic product shrink by about 50 percent.

This has been compounded by limited foreign capital inflows over a perceived country risk profile. The liquidity crisis has resulted in the high cost of finance.
With the central bank not well-funded, financial intermediation by banks has suffered since the Reserve Bank does not have the capacity for lender of last resort.