Zimbabwe failed to sell $30 million of Treasury bills at an auction after the country’s finance minister said banks must buy the securities or they will be compelled to acquire negotiable certificates of deposit.
The Harare-based Reserve Bank of Zimbabwe rejected the $8.65 million worth of bids that were made at yields of 8.5 percent to 12 percent for the 91-day bills, an official at the institution said, declining to be identified because he is not authorized to speak to the media. Units of banks including Barclays Plc (BARC) and Standard Chartered Plc (STAN) operate in the country.
Tendai Biti, the finance minister, made the ultimatum in an interview on Nov. 3 in the northwestern resort town of Victoria Falls. The central bank last month rejected all bids at two sales while a third offering of $15 million generated $9.9 million in accepted bids. The securities are the first to be offered by the bank since 2008, shortly before Zimbabwe abandoned its currency in favor of the U.S. dollar.
“Rather than berating banks -- especially the multinationals, Barclays, Standard Chartered, Old Mutual (OML) and Standard Bank (SBK) of South Africa -- for their failure to lend, the government needs to get a grip on its unsustainable deficit and debt problems,” Tony Hawkins, an economics professor at the University of Zimbabwe, said in column published in Harare’s NewsDay newspaper today.
Biti did not say how he would enforce the ultimatum. Negotiable certificates of deposit are often issued by central banks and while they can be traded in secondary markets ,they cannot be cashed in before maturity.
“I am giving the banks sector the last chance to fully support the Treasury bills,” Biti, 46, said in the interview. “If they don’t support it, I will issue NCDs and that’s it.”
Calls to the central bank were not answered today while calls to the mobile phone of George Guvamatanga, president of the Bankers Association of Zimbabwe, didn’t connect. Biti did not answer calls made to his mobile phone.
Biti and the central bank are trying to kick-start the country’s capital markets after a decade-long recession ended in 2009 after the 15-nation Southern African Democratic Community negotiated a settlement that ended a political dispute. A coalition government between President Robert Mugabe’s Zimbabwe African National Union-Patriotic Front and the Movement for Democratic Change of Prime Minister Morgan Tsvangirai was then formed.
The Zimbabwe dollar was abandoned in a bid to curb an inflation rate estimated at 500 billion percent by the International Monetary Fund. The country currently has a debt of $10.7 billion, according to the finance ministry.
Reluctance to buy the bills stems from “skepticism around the government’s ability to honor the Treasury bills at maturity,” the Tunis-based African Development Bank said in a monthly report on Zimbabwe on Nov. 2.
The plan to restart the bill sales was announced in July by Gideon Gono, the central bank governor. Zimbabwe lacks a benchmark interest rate. The weighted average lending rate for private banks ranged from 14 percent to 20 percent in the four months through July 31, Gono said in a midyear monetary policy statement.
“The return of the money market is a small step forward not least because the Treasury bill rate sets a determined floor for interest rates,” Hawkins said. That “might dissuade politicians from setting statutory maximum lending rates.”
Barclays Bank of Zimbabwe Ltd. (BARC) is the biggest lender by market value on the Zimbabwe Stock Exchange with a capitalization of $62 million while units of London-based Standard Chartered as well as Standard Bank Group Ltd. and Nedbank Group Ltd. (NED), both based in Johannesburg, operate in the country. CBZ Holdings Ltd. (CBZ) is the biggest locally owned bank.
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