| Low investor confidence hits govt securities |
| Thursday, 05 January 2012 22:30 |
By Alawi Masare The Citizen Reporter Dar es Salaam. Rising inflation and low rate of returns have reduced investors appetite for government securities, frustrating efforts by the central bank to raise money through financial markets.However, Bank of Tanzania governor Benno Ndulu told The Citizen yesterday that low investor response to government securities, also known as treasury papers, is due to a shortage of cash in the economy caused by the banks own tight monetary policy aimed at containing inflation and stabilising exchange rates. We are not surprised by the reduced capacity by investors to buy treasury papers because we are aware there isnt enough money in the economy. Even banks are cash strapped, Prof Ndulu said.He added: We instituted measures to tighten liquidity some months ago to reduce spiraling inflation and as a result many financial institutions are cash trapped. BoT has been unable to raise enough funds through treasury bills and bonds since last month due to what financial experts say is the weakening of the fundamentals of the economy heralded by rising economy and low interest rates (weighted average yields) of the treasury papers. BoT auctioned Sh100 billion treasury bills two weeks ago, but ended up raising only Sh13 billion. About a week ago, the government auctioned a Sh20 billion treasury bond, but collected less than Sh1 billion due to lack of interest from investors.BoT planned to raise Sh100 billion through treasury bills in an auction on Wednesday, but managed to get only Sh74 billion. The bank settled for Sh55 billion at a weighted average yield of 18.69. Most of the treasury papers fetch yields that are below the inflation rate of 19.2 per cent, with the exception of the one year t-bills. Sources in the industry also suggested low capacity of the government to pay back mature obligations could also be another reason putting off investors.When treasury bills and bonds mature the central bank is supposed to pay investors who had bought those securities in the past, but the capacity of the bank to pay back is becoming limited because of cash problems within the government, said a source in the financial markets, who requested for anonymity. The shadow minister for Finance and Economic Affairs, Mr Zitto Kabwe, told The Citizen yesterday that undersubcription of treasury papers showed that investors had no confidence in the economy, adding that this is a sign that inflation will increase sharply in the near future. It is expected that inflation could reach 30 per cent in the near future. The government should find ways to reduce spending and boost industrial production, said Mr Kabwe, who is also the Kigoma North MP (Chadema). Treasury bills and bonds are debt instruments issued by the government in exchange for money borrowed from the public. Banks and other financial institutions are usually attracted to securities because they are less risky than lending to individuals and private institutions.However, one dealer who spoke to The Citizen dismissed reports of low investor confidence.I dont think this has anything to do with investor confidence because the government has many sources of revenues. The government cannot fail to pay the investors, said Mr Moremi Marwa of Tanzania Securities Limited (TSL). He also said the timing of the auction could be another factor for some institutions to fail responding to the T-Bills as most of them were reserving their money to pay taxes this time round. Prof Ndulu added that most commercial banks were borrowing from the central bank due to tight liquidity which was intentionally created by the BoT to tame inflation.He said there was a similar situation during the harvest season when many SMEs borrow from commercial banks and other financial institutions. Analysts noted that low rate of returns, which was below the inflation rate, affected investors response, the fact that was indicated by the results of the auction. The one year t-bills whose weighted average yield was 19.73, above the inflation rate of 19.2, was oversubscribed by Sh15 billion. The government had offered Sh35 billion but Sh50.7 billion were tendered and the government accepted Sh35 billion.However, the 182 days T-bills were undersubscribed by Sh8 billion. BoT had offered Sh30 billion but the amount tendered was Sh22 billion, and the bank accepted Sh19 billion at the weighted average yield of 17.21. |
Kuna mswada wa sheria unaotungwa kule Uganda unaotaka mwananchi mwenye ushahidi wa kutosha anaweza kuishitaki serikali au mtumishi yeyote wa serikali aliyefuja fedha za umma. Na kama akishinda kesi basi mtu huyo atalipwa asilimia 25 ya fedha zilizorudishwa kwa huyo aliyefuja. Nafikiri ni muda muafaka na sisi nchi yetu iwe na sheria hii. Naamini itasaidia sana kurudisha fedha zote zilizofujwa na mafisadi pamoja na zile nyumba zote za serikali walizouziana kwa bei chee.
