GOVERNMENT issued Treasury Bills to the tune of US$2,1 billion last year, triggering a fiscal crisis in its quest to plug a widening funding gap, settle legacy debt and resuscitate ailing state-owned enterprises and parastatals as private sector funding wanes.
By Bernard Mpofu
Limited budgetary support from developmental partners and declining revenues due to the underperformance of key economic sectors have forced the authorities to depend on Treasury Bills (TBs) to finance capital expenditure and social spending.
Finance minister Patrick Chinamasa yesterday told Parliament that Treasury had issued debt instruments almost half the size of the national budget to finance its project. Zimbabwe is currently grappling with a debt stock of US$11,3 billion, which includes domestic and external obligations, that has affected the country’s credit rating.
The country’s public debt stock rose from US$9,4 billion in 2015 to US$11,4 billion last year, according to the World Bank.
Chinamasa said while financing through borrowing from domestic market was largely achieved using instruments such as TBs and bonds, the issuance of TBs during 2016 was not entirely to provide for the shortfall between budget expenditure requirements and tax revenue collections.
He said a combination of “inescapable” expenditure requirements and revenue underperformance of US$347,8 million left public finances with a borrowing requirement of US$1,4 billion. “Of the US$2,1 billion worth of TBs and bonds issued in 2016, only US$356,3 million was to finance the budget deficit, whilst US$1,7 billion was to honour outstanding legacy debt,” said Chinamasa during his presentation of the Annual Budget Review for 2016.
“The budget deficit that was financed through Treasury Bills of US$346,3 million, average maturity of 160 days, and treasury bonds, US$10 million, with average tenure of three years.
“Government has accumulated US$1,07 billion worth of suppliers’ and service providers’ arrears to a number of domestic creditors who delivered goods and services to various line ministries and departments…Government has also made a conscious decision to resuscitate CAPS Holdings and Cottco through warehousing their legacy debts.”
TBs worth US$329 million, according to Chinamasa, were issued towards the Reserve Bank of Zimbabwe legacy debt. He added that the assumption of the RBZ debt includes US$130 million due to external creditors.
Government issued TBs worth US$128 million to finance mainly loss-making state-owned enterprises and parastatals. Treasury also issued TBs to the tune of US$219 to recapitalise a special vehicle set up by the Reserve Bank of Zimbabwe to absorb non-performing loans.
Despite this over-reliance on TBs, international financial institutions such as the World Bank and local experts have cautioned Treasury on the over-issuance of TBs, saying this could crowd out private sector lending badly in need of fresh capital to retool and compete with regional competition.
Early this month, Imara Asset Management chief executive John Legat also raised the red flag over the current holdings of TBs, which he said could destabilise the fragile banking sector.
Official statistics show that, at current levels, TBs held by commercial banks are now 1,7 times the level of bank equity capital, up from 1,3 times at the end of 2016.
“In our view this ratio should be setting off alarm bells in the banks’ boardrooms, but clearly it is not. Looking at various bank balance sheets at end May, CBZ would be most exposed with a ratio of over four times equity followed by ZB at two times. Looking at it from the commercial banking sector’s perspective, though, their total deposits have risen by US$330 million to US$5,2 billion during the first quarter,” said Legat in a research note titled The Great Illusion.
“Loans to the private sector are lower than a year ago, reflecting managements’ lack of interest in lending to the private sector where non-performing loans have been a problem for them. The private sector has been largely crowded out by government. So banks have channelled their rising deposits back into TBs. They have all but curtailed the ability of depositors to withdraw their money in the form of cash, hence the long queues that now exist outside the banks.”