BoT bursts Treasury Bills limit by 50%

Prof Ndulu
The government exceeded by 58 per cent the amount it estimated it would borrow in 2011/12 through Treasury securities as it tightened money supply to tame inflation and stabilise exchange rates.

This is said to have impacted on the widening national debt as well as the banking sector. It also affected the private sector capacity to invest in various areas and hence the country’s economic growth.

The Bank of Tanzania (BoT), which collects the money on behalf of the government, said it borrowed 1.989trn/- up to the end of April this year through both Treasury Bills and Treasury Bonds.

This is against a target of 1.2trn/- for the whole 2011/12  financial year that former Finance minister Mustafa Mkulo announced when tabling the budget last June. Out of the 1.989trn/- raised from July to April 25 this year, a total of 1.678trn/- was realised from T-Bills and 311.3bn/- from T-Bonds.

Despite its good intention – taming inflation – economic experts say the high turn-out for the government securities is not good for the growth of the economy.

But Prof Humphrey Moshi of the University of Dar es Salaam’s economics department, said withdrawing large amounts of money from circulation will result into reduced investment capacity by the private sector and increased cost of funding. It can also help in taming inflation but is not a lasting solution.

“However, Tanzania’s inflation is more structural than monetary and if the government wants to solve it then it will be required to invest in energy and agriculture to increase food production,” he said. 

For his part, the BoT governor, Prof Benno Ndulu, said since the financial year is yet to end, one cannot conclude that the government had exceeded the ceiling.

According to him, there are two  limits on T-Bills and T-Bonds, the financing and revolving schemes, which depend on the timing of government decisions.

Already some commercial banks are complaining about the central bank’s move to tighten liquidity. They argue that it increases the cost of funds, resulting into high lending rates. Currently, the lending rates are between 22 and 26 per cent.

Large issuance of government securities – both Treasury Bills and Treasury Bonds –is among factors that increase the national debt. Others are external debt disbursements and exchange rate fluctuations.

The BoT’s mid-year monetary policy statement in February said the national debt stock increased by 4.3 per cent to US$12.5176 billion from July to December 2011. This was on account of new external debt disbursements, exchange rate fluctuations and relatively large issuance of Treasury Bills.

The government borrows through Treasury papers to finance temporary revenue shortfalls in its budget. Therefore there is a possibility that the government exceeded its estimates because of the high demand for money to finance its planned activities.

“When the government fails to get enough funds from tax collection, the easiest way to raise money is through its Treasury securities. It can simply increase ratios in the same frequencies of auctions,” said the chief executive officer of Tanzania Securities Ltd, Mr Moremi Marwa.

The 2011/12 budget already had a Sh780 billion shortfall in the first six months caused by a high inflation rate. Inflation rose to 19.8 per cent in December and slightly dropped to 18.7 per cent in April.
Source: The Citizen,, reported by Alawi Masare
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