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Zimbabwe government shells out $60 million treasury bills

by Staff Reporter
26 Aug 2018 at 06:43hrs | Views
Government's debt to Premier Service Medical Investment (PSMI) is set to increase on account of future interest costs after it approved a $60 million issue of treasury bills (TBs) to refinance and roll over its debt to the insurer.

The debt relates to the accruals of arrears in government contributions to Premier Service Medical Aid Society (Psmas), a subsidiary of PSMI, estimated at around $219 million in August 2016.

However, treasury's debt refinancing decision will effectively expand government's debt to the company at a coupon rate of 5% per annum over the next five years, holding the annual inflation rate constant.

The interest will be paid out semi-annually.

Finance minister Patrick Chinamasa on August 20 wrote to central bank governor John Mangudya mandating the issuing of $60 million worth of TBs to PSMI to reduce the arrears on its medical aid contributions for civil servants.

"The Reserve Bank of Zimbabwe is hereby mandated to issue treasury bills worth $60 000 000 on behalf of Treasury to PSMI (Pvt) Ltd to reduce government arrears," he said in the letter.

The letter was signed by Chinamasa and copied to Finance permanent secretary Willard Manungo, head of the Public Debt Management Office John Mafararikwa and the accountant-general Daniel Muchemwa.

PSMI, which operates six subsidiaries including Psmas, provides medical health care services and has been in the market looking to raise over $100 million to finance its project portfolio.

PSMI MD Farai Muchena could neither deny nor confirm that the government was in the process of clearing its debt using TBs.

"Officially we have not yet been informed about that (TB issue)," he said in an interview.

"I am not saying it is not true, but officially we have not yet been informed about it.

"We have been looking for funding to grow access for people to seek healthcare services, which are essential for you and all of us and that is our role that you find access."

PSMI's funding needs suggest that the company might consider trading the TBs for money to finance its projects.

Analysts have expressed concerns over government's use of debt instruments to refinance and roll over its debt.

They point out that, as a consumption item, it would accelerate public domestic debt growth; drive inflation upwards through money supply expansion; crowd out the private sector in financial markets and worsen the foreign currency crisis through the creation of new money.

The gap between transferable instruments and money in circulation is likely to pile more pressure on foreign currency demand.

There are also fears that banks that have a significant exposure to TBs could run into liquidity problems should government struggle to honour outstanding TBs on maturity.

Source - The Standard