RBZ cautious on Treasury bills

Reserve Bank of Zimbabwe Governor Dr Gideon Gono, in announcing the Monetary Policy Statement in July, said the Government had plans to issue short-term Treasury bills which were expected to promote short-term collateralised lending, thus resuscitating the interbank market.

Currently, trading between banks is largely limited to bilateral arrangements, instead of being bank-wide. But indications from the IMF reveal that the local fiscal authorities are very cautious about issuing these bills.
According to the IMF, concerns are that the absence of quality collateral may be impeding the re-emergence of a formal interbank market in the country.

“The authorities are considering issuing Treasury bills to help re-establish the interbank market beyond existing ad-hoc arrangements between pairs of banks; but they are aware of the risk that issuing bills may lead to additional fiscal pressures,” said the IMF.
The IMF has also cautioned for a cautious approach in the issuance of Treasury bills.

“Thus, staff advised that any Treasury bills issue should be gradual, limited, and closely monitored to verify that those instruments do in fact support an interbank liquidity market.”

But an economist with a local bank, who preferred anonymity, disputes the lack of quality collateral in the country.
“I am not sure what the IMF meant by saying collateral is in a bad state in the country. What I know is that most (if not all banks) take collateral which is valued by independent valuers (typically, estate agents).

“Banks also include a ‘haircut’ on all collateral used to secure loans. The immovable property market, typically, has three values — replacement, fair value and fire sale value.

“The interbank market is constrained by lack of tradeable instruments, and the absence of lender-of- last-resort — these are the key determinants of the interbank market,” he said.

Meanwhile, a cautious approach to issuing Treasury bills will negatively impact on the setting up of the proposed Lender of Last Resort Fund.
Since the LOLR Fund is largely dependent on external investors to inject capital, functionality of the LOLR window is dependent on the availability of Treasury bills.