Government is set to float $ 300 million worth of Treasury bills to finance “developmental projects,” bringing the total to $ 490 million accrued using this debt instrument in the past three months since the reintroduction of the auction system.
This has irked economic analysts who fear the development will increase RTGS balances in the market and likely to spark inflation.
Already red flags are flashing with fears the recent exchange rate escalations might have been triggered by the $ 190 million worth of TBs that were floated into the market between the months of August and September.
TBs are negotiated debt instruments issued by the government through the Central Bank to finance short-term projects likely to impact on money supply if issued excessively.
In August, the Reserve Bank of Zimbabwe (RBZ) conducted two auctions in batches of $ 30 million and $ 60 million before conducting another one in September, floating $ 100 million worth of TBs.
The latest round of TBs to be floated worth $ 300 million have raised concerns over government’s change of policy, following assurances by the Minister of Finance and Economic Development, Mthuli Ncube last year that government would stop relying on this facility to run its programs.
“This is our greatest fear as well,” stated economic analyst Pepukai Chivore.
“We are told money supply is now at ZWL$ 15 billion and continuous injection of money through TBs might lead to increases in money supply which is inflationary. Austerity was working, why do we need TBs now, we have seen an increase on government expenditure in recent months,” he added.
Government seems to have taken a U-turn on its austerity rhetoric in as far public spending is concerned despite recording budgetary surpluses since the beginning of the year.
For the first half of 2019, government recorded ZW$803.6 million budgetary surplus.
But the continuous issuance of TBs is now seen to be derailing progress that was taking place in consolidating government expenditure since austerity was announced.
Government is hence urged to look for alternative sources of financing.
“There should be prudent utilization of the resources that we have. We have over 60 minerals and we sit on over 22 gold rich reserves. Let’s have a transparent auction of our minerals to raise funds from the resources we have rather than create future debts,” added Chivore.
Between 2017 and 2018 alone, government issued TBs and Bonds amounting to $ 4.3 billion to finance its programs.
Market watchers say the continuous issuance of TBs will hit banks that are participating in the auction, who face the possibility to being paid back their money with less value when the TBs expire considering the inflationary environment in the country.