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Happiness Zengeni Harare Bureau
The government has issued about $30 million worth of treasury bills of between two to five years to local banks to offset outstanding amounts owing to tobacco farmers under the Reserve Bank of Zimbabwe Tobacco Retention Scheme. The TBs were issued to Agribank, NMB, Metbank, Allied Bank, Ecobank, MBCA, Barclays, Stanbic, Stanchart, ZB, FBC and CBZ bank for the amounts.

This was after the completion of the validation and reconciliation exercise on the figures that had been submitted by the banks.

The TBs are half yearly coupons with a prescribed asset and tax exemption status at an interest rate of 2 percent. They can be used as securities on the interbank market.

The RBZ during former governor Dr Gideon Gono days introduced the tobacco retention scheme as a carrot and stick export incentive which enabled the country to raise foreign currency. Tobacco growers were obliged to participate in the scheme but they ended up being owed sums of money by the central bank.

In the first quarter, Treasury issued $103 million worth of the bills to deal with the RBZ obligations. Of the TBs, CBZ took up $61 million towards FCA balances and $1,6 million towards tobacco retentions. Stanbic Bank $28 million on FCA balances and $719,401 for tobacco retention, while Ecobank had $2,34 million towards FCA balances and $327,499 for tobacco balances. Agribank $5,6 million on tobacco, $297,161 for FCA balances. Allied Bank purchased $811,514 towards FCA balances and $906,878 towards tobacco retentions. BancABC snapped up $862,103 towards FCA balances. FBC Bank bought $324,774 for FCA balances and $810,025 for tobacco retentions balances while Metbank picked $11,348 for FCA balances and $72,617 for tobacco balances.

The additional paper is expected to extinguish this component of the RBZ debt.

The government has already communicated with the Zimbabwe Tobacco Association on its commitment to extinguish the debt.

In a July 16, 2014 letter to the association seen by our Harare Bureau the finance ministry urged the owed tobacco farmers to liaise with their respective banks  on when they can expect to start receiving their  money.

Treasury continues to turn to TBs to raise funding as the fiscal space remains constrained. Sources within  the ministry told our Harare Bureau that the government has to date raised in excess of $200 million in TBs while a similar amount will be raised by year end.

Bloomberg quoting sources reported the government also raised $2 million last week from selling 180-day Treasury bills with an interest rate of 9,5 percent via private placements to banks and pensions funds. Zimbabwe has raised $8,5 million this month compared with $32 million in June.

Analysts have warned the government against “indiscriminate” use of Treasury Bills to fund recurrent expenditure as this could crowd out the private sector from the limited liquidity available in the market.

Confederation of Zimbabwe Industries president Charles Msipa recently said although industry welcomed the clearing of FCA balances through TBs by the Reserve Bank of Zimbabwe, the federation was concerned that excessive use of the instruments could force the private sector out.

“There is so much capital available in the country so typically if the government gets into a deficit and gets into a habit of relying on that liquidity to finance the deficit it means that there is less money available to the other players in the productive sector for lending,” said Msipa.