Am­bi­tious tar­get set for bond auc­tions

The Myanmar Times - - Front Page - SWAN YE HTUT swanye­htut@mm­times.com

The govern­ment is hop­ing to sell around K1.85 tril­lion in bonds and Trea­sury bills to ac­count for a sig­nif­i­cant part of do­mes­tic bor­row­ing.

THE govern­ment has set an am­bi­tious tar­get for its up­com­ing Trea­sury bond auc­tions next month, aim­ing to sell about K1.85 tril­lion (US$1.53 bil­lion) in debt, to ac­count for 60 per­cent of its do­mes­tic bor­row­ing for this year’s bud­get, a senior of­fi­cial from the Cen­tral Bank told the Pyi­daungsu Hlut­taw last week.

Speak­ing dur­ing a par­lia­men­tary ses­sion on Au­gust 25, U Set Aung, deputy gov­er­nor of the Cen­tral Bank, said that the es­ti­mated do­mes­tic bor­row­ing for the Union bud­get for 2016-17 was K3.09 tril­lion.

The govern­ment hoped to raise 60 per­cent of the funds through bond and bill sales, he said, while the re­main­ing 40pc, or K1.236 tril­lion, will be bor­rowed from the Cen­tral Bank.

“We are plan­ning to sell not only Trea­sury bills, but also Trea­sury bonds at the Trea­sury se­cu­rity auc­tion com­menc­ing in Septem­ber, to re­duce the im­pact of in­fla­tion while cov­er­ing the bud­get deficit,” he said. “The Cen­tral Bank is do­ing its best to re­duce the in­fla­tion­ary im­pact.”

The up­com­ing auc­tions are in­tended to be a shift to­ward in­ter­na­tional stan­dards with mar­ket-led pric­ing. Pre­vi­ous ad­min­is­tra­tions would sim­ply fix the in­ter­est rate on govern­ment bonds, fail­ing to at­tract any pri­vate sec­tor buy­ers from the bank­ing industry.

In early 2015, the govern­ment started sell­ing Trea­sury bills though an auc­tion sys­tem, but it could not achieve rates high enough to en­tice com­mer­cial banks – the only per­mit­ted in­vestors – so much of the debt was sold to the Cen­tral Bank. In or­der to buy govern­ment debt the bank typ­i­cally has to print money, which in turn pushes up in­fla­tion.

Likely to be­gin with the sale of two- or three-year debt, the govern­ment is seek­ing to re­duce its re­liance on bor­row­ing from the Cen­tral Bank, in part to help con­trol in­fla­tion, which the ADB es­ti­mates at 9.5pc this fi­nan­cial year.

The govern­ment sold K2.99 tril­lion to the Cen­tral Bank in the 201516 fis­cal year.

U Maung Maung Win, deputy min­is­ter at the Min­istry of Plan­ning and Fi­nance, said the govern­ment would only bor­row from the Cen­tral Bank “if there is no other way to bor­row”.

“But our ex­pec­ta­tion over the long term is to re­duce bor­row­ing from the Cen­tral Bank,” he said. “This year might be 40pc, then next 30pc and so on.”

The pre­vi­ous govern­ment made ini­tial steps to se­cure a credit rat­ing that would pave the way for Myan­mar to is­sue an in­ter­na­tional bond, hir­ing global lenders Cit­i­group and Stan­dard Char­tered to help with the process.

But the coun­try has still not gone through the process of se­cur­ing a rat­ing, and any moves to do so will re­quire a dis­cus­sion in par­lia­ment, said U Maung Maung Win.

“There’s no in­ter­na­tional bond im­mi­nent,” he said. “We need to go through some in­ter­nal pro­cesses and sub­mit the idea to par­lia­ment.”

By virtue of the rainy sea­son slow­down in lend­ing, banks have in­di­cated that ex­cess liq­uid­ity this time of year, com­bined with few in­vest­ment al­ter­na­tives may help spur bond sales.

“The govern­ment’s tar­get is pos­si­ble,” said Daw Thi­dar Aye Mon, a man­ag­ing di­rec­tor at KBZ Bank.

The sav­ings are now slated to fund the two new min­istries – the Min­istry of Eth­nic Af­fairs and the Min­istry of the State Coun­sel­lor. The bud­get deficit will dip slightly, to K3.76 tril­lion from the pre­vi­ous es­ti­mate of K3.9 tril­lion.

The govern­ment sold K2.99 tril­lion in govern­ment debt to the Cen­tral Bank in the 2015-16 fis­cal year, U Maung Maung Win told par­lia­ment, and gave sev­eral rea­sons why the amount had in­creased to that level.

Photo: AFP

Cashiers se­cure piles of Cen­tral Bank K5000 notes.

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