November 6, 2012 / 2:48 PM / in 5 years

Cash-strapped Zimbabwe fails to sell T-bills again

HARARE (Reuters) - Zimbabwe failed to sell treasury bills for the third time in around a month on Tuesday, traders said, as wary banks brushed off government pressure to help revive the domestic debt market.

Zimbabwe's central bank Governor Gideon Gono gestures during a news conference at his office in Harare February 20, 2009. REUTERS/Philimon Bulawayo

Cash-strapped Zimbabwe is trying to relaunch its T-bill market but has seen little interest from commercial banks, which are demanding hefty yields to hold the short-term debt.

The central bank had said in private meetings it would garnish money from foreign lenders as punishment for refusing to buy the bills, one banker familiar with the matter told Reuters.

Dealers said Tuesday’s $30 million offering of 91-day bills attracted just $8.65 million worth of bids, with yields ranging from 8.5 to 12 percent.

The government relaunched the treasury bill market last month but has managed just one successful auction in four attempts -- selling $9.85 billion on October 26.

In the run-up to the latest planned issue, Finance Minister Tendai Biti had leaned on the country’s major banks.

“I am giving the banking sector the last chance to fully support the treasury bills. If they don’t support it, I will issue NCDs and that’s it,” Biti was quoted by the Herald newspaper as saying.

NCDs, or negotiable certificates of deposit, are a form of a savings instrument issued by banks for big deposits and are transferable, and therefore tradable in the secondary market.

Both Biti and Central Bank Governor Gideon Gono have previously criticised foreign-owned banks, Standard Chartered, Barclays, Standard Bank and a unit of South Africa’s Nedbank, for their lack of interest in the treasury bills, which both men say are low-risk.

The African Development Bank (AfDB) has said lenders remain sceptical about the government’s ability to honour its debt.

“It seems that banks do not share a similar view relating to the low risk associated with (T-bills). The outcome of the tender suggested that most banks think the risk level is not low, contrary to the views of the authorities,” the AfDB said in its monthly economic review.

“This is against the background of tight budgetary constraints and the uncertain political and economic environment.”

The lack of enthusiasm for the treasury bills also reflected a dollar crunch in the market, one dealer said.

“What this shows is that there is no liquidity in the market, although there does appear to be resistance to the bills from the bigger foreign banks which do have the cash,” she said.

Zimbabwe faces a huge debt burden. Its total external debt is estimated at $10.7 billion, or 113.5 percent of GDP, at the end of 2011. More than half of it is in arrears.

The country’s economy is growing again under coalition government after a decade of decline and hyperinflation. But the momentum has slowed and Biti has said 2012 growth, initially projected at 9.4 percent, could come in at 4 percent, even lower than his mid-year revision of 5.6 percent.

The country is due to hold elections in 2013 and there are fears a repeat of the violence that marred a 2008 presidential poll could send the economy into a spiral again.

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