Govt bid to borrow 25bn/- falls flat

The government’s 15-year Treasury Bond (T-Bond) was yesterday under-subscribed by 42.6 per cent, forcing the Bank of Tanzania (BoT) to cancel the auction.

The BoT issued the T-Bond to raise at least Sh25 billion to cover the government’s financial needs but it ended up receiving a total of Sh14.35 billion bids.

According to the BoT associate director for domestic markets department, Mr Paul Maganga, the investors’ offered too low funds to be absorbed by the central bank as the financial system grapples with tight liquidity – fuelled by massive withdrawals as commercial bank clients seek money to spend during Christmas and New Year festivities.

“Some investors offered as low as Sh64 on every Sh100 that we tendered. This is quite uneconomic as it meant the government would borrow expensively so we decided to cancel the T-Bonds auction….we did not accept even a single bid,” he said.

According to Mr Maganga, with tight liquidity within commercial banks, investors were compelled to believe that the government was desperately in need of cash.

It was such a belief that made investors offer rates that are higher than the market ones.

“We then decided to cancel it since the government is not desperate. It has enough cash to meet its daily requirements and the cancellation will not affect public spending in any way,” said Mr Maganga.

There are lessons learnt however, that it is not effective to borrow money during the festive season as investors have already listed their obligations and that they lack cash to lend.

If the government would have accepted the amount offered then it could pay up to 20 per cent yield to maturity which could be among the most expensive borrowing the government had ever made.

Treasury bills and longer-term bonds are among the safest forms of assets that banks can hold. These are used by lenders as their benchmarks for pricing other loans to their clients.
Source: The Citizen, Veneranda Sumila from Dar es Salaam, Tanzania
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