TREASURY BILLS TAKE A SLUMP
Treasury bills (Tbills) spot a drop in growth rate for the 2022/23 year despite being the go to alternative source of fund for the government while the newly adopted Treasury bond picks up pace to mobilize over 38 billion birr, with close to a quarter ownership by the state owned commercial bank.
When the government reformed the Tbills at market determined rate starting from the end of 2019, the move caused it to mushroom and attract big players like financial institutions.
It has also become a big instrument to reduce direct advance (DA) significantly to fill the government expenditure demand. For instance the stock of Tbills rose by 163 percent in the 2021/22 budget year to reach 317.7 billion birr.
In the stated period, the net issuance of Tbills with varied maturities was approximately 196.7 billion during the previous year.
When it stood at 317.6 billion birr from 121 billion birr of June 30, 2021, the exaggerate growth rate made the Tbill share to domestic debt to reach at over 20 percent, which is a double climb in a single year. While for the year that ended in June 2023, even though there was a growth rate in the market, it shrunk significantly compared with the same period of the preceding year.
The latest debt bulletin of Ministry of Finance (MOF) indicated that the total outstanding Tbills has increased by eight percent to reach 341.9 billion birr from over 317 billion birr a year ago. “Throughout the period, there was a net increase of roughly 24.2 billion on Tbills of various maturities,” the bulletin explained. The performance indicated that the growth rate and fresh bills purchase dropped noticeably that experts stated
that lack of resources at commercial banks, who are major players on the market and introduction of new bond by the government as the main reason. For the year that ended June 30, 2023, the Tbill share for total domestic debt also shrunk to about 18 percent from over 20 percent, of a year ago.
As part of the new policy applied in the past budget year, the government through the National Bank of Ethiopia introduced a 20 percent Treasury bond that became effective on November 1, 2022.
As per the directive ‘MFAD/ TRBO/001/2022’, all banks except the Development Bank of Ethiopia (DBE), a state owned policy bank, were set to invest 20 percent of their loan portfolio in Treasury bonds.
The treasury bonds were issued to each bank on a monthly basis having a maturity period of five years with each bond having two percentage points higher than the minimum saving deposit rate which is currently at seven percent. The main aim of introducing the bond was to give space for the government to mobilize resource from different resources to fill its budget gap and pause on DA, which has shown spike in the past and preceding budget year in connection lack of resource from potential partners who provided direct budget support for the government.
That forced banks including the stated owned financial giant, Commercial Bank of Ethiopia (CBE) to buy a bond from the central bank, which experts argue contributed to slow down the Tbills market. In the reported budget year, the stock of Treasury bond has reach at 38.3 billion birr.
The stock of this instrument was 25.6 billion birr at the end of the third quarter of the budget year that increased by 12.65 billion birr in last three months of the budget year to reach over 38 billion birr. From the total Treasury bond, the share of CBE has been over nine billion birr, which is 23.5 percent, while the remaining 29.2 billion birr is other commercial banks contribution.
In related with DA in the year the total outstanding of DA, which was 236.5 billion as of October 7, 2022, was converted into long term bond and a new DA was issued, totaling 120 billion birr. That makes the total amount of direct advance the government received from the central bank to be 180 billion birr, which included 60 billion birr that issued in the first quarter of the 2022/23 budget year but converted to long term bond. This amount of DA is the biggest ever since the government took strong stand taking the DA, which is one of the major instruments to gallop inflation that is now one of the highest in the continent. While experts argued that the circumstance on the ground pushed the government to access the DA due to unexpected and vital expenditures like aid and rehabilitation works that were aligned with conflicts mainly in the northern part of the country, when support from foreign partners was very minimal.