eBusiness Weekly
Business Writer
Government of Zimbabwe, this week, issued a $1,550 billion Treasury Bond (T-bond) to raise funds meant to finance 2021 fiscal year programmes.
Treasury bonds (T-bonds) are government debt securities issued by the central bank. The T-bonds earn periodic interest until maturity, at which point the investor is also paid a par amount equal to the principal.
The latest bond issuance is in line with the 2021 National Budget, which projected a budget deficit of $30,8 billion (1.3 percent of GDP).
Presenting the 2021 National Budget in November last year, Finance and Economic Development Minister Mthuli Ncube, proposed that the entire deficit would be financed “through the domestic market” with T-bonds expected to raise $7,707 billion in total.
The balance of $30,8 billion would be raised through Treasury Bills (TBs).
While most TBs were attracting interest rates above 20 percent, Government is looking to pay 18 percent per annum for the T-bonds.
Under normal circumstances, interest rates should be higher for longer term debt because of the additional risk involved with money that is tied up for a longer time.
In setting the 18 percent interest rate, authorities could, however, be considering inflationary trends which have been on a downward trajectory since peaking in July 2020. Interest for the T-bonds will be payable half-yearly on the following dates 20 February and 20 August until maturity of the bond, according to the central bank.
The bond can also be redeemed at par in Zimbabwean dollars on the maturity date which comes after two years.
Features for the bond include prescribed asset status as well as liquid asset status.
The bonds will also be tradable and redeemable on maturity and acceptable as collateral.
Potential investors for the bond are expected to come from pension and provident funds, insurance companies, mutual funds, commercial banks and other interested institutions as well as individuals in Zimbabwe.
Secretary for Finance George Guvamatanga is on record saying while TB borrowings are planned in the 2021 National Budget, Government was not necessarily in need of money, but is also using the TBs to establish the yield.
