After last year’s reintroduction of treasury bills as a method of government borrowing and the subsequent disdain for treasury bills in the market towards the end of the year, it seems the government was quite apprehensive about going back to the market to borrow. They could only wait so long ending the wait on the 18th of February, going to the market for $200 million. According to the Reserve Bank of Zimbabwe, the issue was oversubscribed as bids were received for $270 million, with the $70 million access being rejected.
As government to garner international budgetary support from multilateral finance organisations it was inevitable that budget deficits would have to be financed through domestic borrowing so much so that domestic debt doubled in the first year after the change at State house. Treasury bill auctions were reintroduced and continue to fund “government programmes” which recur quite frequently. Every month last year to be precise. The downside is that treasury bills are purchased at a discount (less than face value) but repaid at face value. This has obviously visible implications on money supply which ballooned 250% in the year 2019. Which in turn fuels both inflation and exchange rate depreciation.
The market, however, showed disdain for longer durations, preferring 90 and 180-day duration bills in 2019. Understandable given the inflationary environment so the uptake of the 272 day (9 months) bills is quite curious. While some analysts have pointed out that the auction was only open to commercial banks, the Post Office Savings Bank and the Infrastructure Development Bank of Zimbabwe and may play in part in the uptake as banks have historically shown a willingness to comply with Reserve Bank ideas. The highest rate offered was 30% while the lowest was 15%. In treasury bill auctions the buyers offer the money at the rate of interest they deem is acceptable to them.
What does this mean for the economy? Cash strapped government with its penchant for borrowing will hail this as a sign that the market is ready to lend more to them. Galvanised by this they will likely continue down this inflationary path. While month on month inflation came in at 2.23% for January 2020 that was more due to the December slow down than any measures taken by government. Brace for a high double-digit inflation figure next month and the return to publishing year on year inflation will surely through the cat amongst the pidgeons.