Treasury Bill repayments will shock economy

Tapiwanashe Mangwiro

Treasury Bills (TBs) repayment management will be crucial going forward as over $3 trillion worth of TBs will be maturing in the next six to twelve months, analysts say.

Half year financials of selected banks show that in the next six months to a year, TBs worth $3 trillion and US$10,7 million, will be ready to be redeemed, causing fears of another round of excess liquidity in the economy.

Such fears are not unfounded as the phenomenon once struck and caused despondency in the economy. The local economy is very volatile and any sign of excess liquidity ruins the stability of the monetary environment.

The Government in 2022 said it is committed to continue to sterilise excess liquidity already injected into the economy through issuance of TBs, while charging the Reserve Bank Zimbabwe (RBZ) to sterilise excess liquidity through appropriate monetary policy instruments.

Economists have defined TBs as a short dated government security, yielding no interest but issued at a discount on its redemption price and always issued at discount to par.

In Zimbabwe TBs are Government borrowings from the local market. These have a tenure of 91 days to at times 5-10 years, and these use an open market operation (OMO) auction system where bids are entertained and offers made. Individuals, companies can subscribe to these from the RBZ tender or buy them on the secondary market at discounted rates. It is a negotiable instrument from one party to the next.

During recent times the Government has been issuing Treasury Bills to its creditors through RBZ to cover its financial obligations and at times to raise money to meet its day to day financial obligations not necessarily capital expenditure like infrastructural development. RBZ and government have been paying its creditors using TBs.

Bankers Association of Zimbabwe president, Lawrence Nyazema, said if those TBs are maturing at the end of the year, it means the Government has to pay Zimbabwe dollar liquidity for maturing TBs.

“In order not to create issue of excess liquidity in the market, it would be wise for government to rollout new issuances of TBs to take care of the excess liquidity that is there. But in any case, we also have NCDS which is an instrument that is being used to take out short term excess liquidity, so at the end of each day, excess liquidity that is on bank positions is taken by RBZ for a period of between seven and 30 days, so that is one short term way of managing excess liquidity,” Nyazema said.

He added that in the medium to long term, it simply means any maturing TBs would be subject to reissuance so as not to create a glut of excess Zimbabwe dollar liquidity in the market. TBs can become a major source of economic vulnerability, analysts told Business Weekly yesterday.

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 historically struggled to pay off maturing TBs, a situation that creates problems for TB holders.

Before 2021, 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.

The country is not new to TB payments that have resulted in inflation in the economy, the Sakunda transactions of its US$366 million which was borrowed to support command agriculture is one of the many examples.

Zimbabwe, which adopted the US dollar as legal tender in 2009, launched a transitional currency in February 2019 and converted all its domestic foreign-currency debt to local currency at a ratio of 1:1, but Sakunda’s bills remained denominated in US dollars.

Sakunda then redeemed US$330 million of the bills in July 2021 and was paid more than $3 billion Zimbabwe dollars by the central bank, according to parliament reports.

With much excess liquidity, the company used some of the money to buy dollars on the black market, devaluing the local currency by 23 percent at the time. The central bank ordered banks to freeze the accounts of the company and three other businesses, according to a letter issued during that period.

Economist, Enock Rukarwa, says the Government will need to meticulously deal with the threat as they are inflationary under the circumstances.

“TBs financing is inflationary as it increases broad money supply in the economy. However, in the past the Reserve Bank of Zimbabwe has been restructuring maturities assessing obtaining circumstances and monetary objectives. As a measure to sustain monetary shrinkage and anchor possible inflationary pressures it will be prudent to roll over the instruments in the short to medium term,” Rukarwa said.

Development economist Dr Prosper Chitambara said the TBs need to be monitored carefully and not be repaid all at once but need to maintain the balance of the quantum of money in the economy.

“This is printing money. Treasury bonds have been abused before with beneficiaries manipulating the exchange rate at the expense of the Treasury and the taxpayer,” Chitambara said.