Focus now shifts to long-term bonds

Focus now shifts to long-term bonds

This is because the yield and coupon rates paid as part of lending to the government ends-up at hands of local investors who are spending the amount domestically, thus pushing aggregate demand side of the economy. And since the demand is on higher side automatically trigger those on the supply side to increase output to match with the gap in a bid to bring back the curve at the equilibrium—hence pushing a number of production variables up that include employments, raw materials, and so forth.

Therefore the government statement issued by Ministry of Finance Permanent Secretary Mr Ramadhani Khijjah, last week that it is ready to launch longer tenure Treasury bonds at the market is a good move in pushing forward the economy. Because, local bonds are integral part of domestic capital markets, without which there would not be liquid cash available for companies to grow, the economy to grow and the government to invest.

“Bonds help raise capital to build necessary infrastructure by facilitating liquidity, in tune with long-term and short-tem objectives of the borrowing,” NIC Capital Managing Director Mr Irungu Nyakera said. Thus, the government intention to issue longer tenure bonds of between 15 and 30 years to speed up infrastructure construction poises as a good bid to address supply chain constraints in the economy at a faster pace.

Mr Khijjah said the issuances of the longer tenure treasury bonds are of paramount importance as dependence on donors’ sources has some limitations. “I cannot tell off hand exactly when, but the bonds will be issued soon. Financial and capital markets experts are working on the issue so as to advice us (the government) soundly,” Mr Khijjah said.

The PS said last week after opening a one-day financial deepening seminar that was organised jointly by Dar es Salaam Stock Exchange (DSE), Capital Market and Securities Authority, World Bank investing Arm IFC and NIC Capital, a sister company of NIC Bank.

He said once experts finalized their propositions on how to go about, the issuance would follow suit without much ado as the country needs to address the infrastructure challenges using internal resources.  Capital market experts are currently working on coupon and yield rates to be offered for such long term tenures which are taking into consideration key macroeconomic fundamentals such as inflation and exchange rates.

IFC Country Manager for Tanzania Mr Dan Kasirye, said financing Africa’s development, includes Tanzania, and requires long term investments— especially in sectors such as road, industry, housing and microfinance. “…local bonds markets can be important sources of this funding as they mobilize funds from domestic and international investors,” the country manager said.

The DSE Chief Executive Officer, Mr Gabriel Kitua, said the bourse has come of age and could now facilitate listing of all sizes of companies, corporate bonds of any class, sovereign and sub sovereign bonds. “..It is time companies, government, municipal authorities and investors turn into growth opportunities through capital markets,” Mr Kitua said.

The good thing is that the market is ready for such bonds. And not only that local investors—comprise of pension funds and commercial banks—are awash with cash while stockbrokers position amicably to market the debt instrument. Tanzania Securities Chief Executive Officer Moremi Marwa said the market is ready for up to 30 years bonds as the current situation portraits the picture, were almost all 10 years bonds have been oversubscribed in the past.

Zan Securities CEO Raphael Masumbuko also seconded his fellow stockbrokers adding “after all there is a good exit mechanism for investors if they want to sell their bond through DSE.” The financial infrastructure to facilitate the bonds trading and auctioning are in place. Fortnight ago the Bank of Tanzania (BoT) launched an online system for bidding of government securities (GSS), which has been described as the first of its kind in the East African region.

BoT Governor Prof Benno Ndulu told reporters that the GSS puts the country ahead of other economies in the region, saying the home-grown system offers a combination of online bidding and Central Depository Services (CDS). "This is a home-made system, it really works," said Prof Ndulu, while teasing those who believed the country cannot produce high quality products.

BoT's Director of Management Information System Edward Makwaia said  by developing the  system, the central bank has managed to save millions of shillings, saying the software  would have cost  a minimum  of  300,000 US dollars (about 480m/-). "The software can cost up to one million US dollars (about 1.6bn/-), plus servicing fees, which is not less than 100,000 US dollar (about 160m/-) yearly," he said.

“Thus, in order to complement conventional financing sources, the government intends to mobilise resources through the capital markets,” Mr Khijjah said “therefore, the importance of capital market in facilitating required long term investments cannot be overemphasized.” The PS said that it is the government belief that the conditions are ripe for use of the country’s capital markets.

Appetite for long tenure govt bonds wanes

THE appetite for longer-term government ...


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