Technocrats fine-tune multi-billion Pula bond

MBONGENI MGUNI
Staff Writer | Friday October 29, 2010 00:00

The bond programme should have been finalised for approval by the Winter Parliament but was delayed by complex discussions on the quantum of notes to be issued, maturities and debate around what the funding raised should target in the next three years.

In addition, the government's spending cuts and higher mineral production provided a grace period for the finalisation of the programme.

Authoritative government sources told BusinessWeek this week that the bond programme was being fine-tuned for consideration by the forthcoming Parliament.

According to available data and statutory thresholds for public debt, Government could rightfully borrow up to P15 billion from the domestic market. The 2008 bond issuance programme, under which the last bonds and treasury bills were issued in September, was worth P5 billion.

'At this point, we are confident that the document will be in the November Parliament and are at an advanced stage of setting the quantum of debt that Government will be seeking,' said one insider.

'It's important that full discussions are held around the quantum because Government cannot simply borrow for the sake of it. The bond will cover several years and we have to identify the funding needs in government accordingly.

'The ongoing budgetary process for 2011 will partly inform the size of this programme, but by and large, government's funding needs over the next few years will be the main determinant.'

Other considerations for the think-tank include the government's current domestic and external indebtedness that is estimated at about P24 billion, prevailing low interest rates, maturity periods, capacity within the domestic capital market and specific funding needs for the current and forthcoming budgets.

A fiscal rule constrains government's external and domestic borrowings to not more than 40 percent of the Gross Domestic Product (GDP).

The Secretary for Economic and Financial Policy, Taufila Nyamadzabo, told yesterday's Budget Pitso that the government's current domestic debt allowed room for further borrowing.

'The external debt is near 20 percent of GDP, but the domestic is around five percent, so we have room to increase bond issues. We have scope to borrow, but there's no reason to do so unless needs are identified,' he said.

'In years gone by, our debt used to be less than five percent of GDP, but now it's close to 25 percent, both domestic and external.'

The Permanent Secretary at Finance, Solomon Sekwakwa, added: 'As the law stands, it allows us to be 20 percent of GDP in debt for domestic and another 20 percent for external. We are not there yet and we don't want to go there.

'We need to be very careful; we don't want to be right on the margin in every area we go because when another shock comes, we will be in trouble. This we do by ensuring that we balance between borrowing and utilising our reserves.'

By pushing the 2011 bond issuance programme through the November Parliament, the government will be able to approach the market next March for debt, providing further funds for short and medium-term projects, programmes and strategies.

Government, however, hopes to reduce its deficit in the 2011/12 budget as it pushes towards a balanced budget by 2012/13.