MASERU — The first batch of the M125 million treasury bonds which were issued last week were quickly snatched from the market, Central Bank of Lesotho governor Moeketsi Senaoana has said.
The treasury bonds were introduced by the government to finance its expenditure and reduce its budget deficit which shot to 26 percent in June, up from 8.8 percent in the first quarter of the year.
The government’s treasury department says it is looking at raising about M250 million through the three- and five-year bonds.
“The primary purpose of the treasury bonds is to create and develop the capital market, following which large institutions such as commercial banks and insurance companies and others could then create a secondary bonds market,” Senaoana said.
He said the bonds will be used to mobilise savings.
The bonds currently offer higher returns as opposed to normal savings rates.
The three-year bonds are offering interest rates of 8.25 percent paid semi-annually at a time when the inflation rate is currently 3.3 percent.
The total allocation was M50 million.
The bonds were however over-subscribed by about M17 million which resulted in a total of M66.7 million.
At least M75 million was allocated under the five-year bonds with yields at maturity pegged at nine percent.
These bonds were also oversubscribed by M42.1 million with the total amount of bids received being M117.1 million.
“If there is higher demand for the bonds we are looking at introducing seven- and 10-year bonds in due course.
“The goal is to set up a stock market following well developed money and capital markets,” Senaoana said.
Treasury bonds normally have zero percent risk attached to them as they are backed by the state.
They give a stable source of capital financing for the government.
Senaoana said the market needs to be nursed and developed to be able to take an active role in the capital markets.
Finance Minister Timothy Thahane said the introduction of the bonds was long overdue as it would ensure a robust development of the local economy.
“It is a challenge for us to deepen our institutions and develop the skills required for the smooth operation of such institutions,” Thahane said.
He said the government was working closely with the central bank to develop a strong supervisory system to monitor the financial sector.
Thahane said the funds raised will be used to develop capital projects such as roads. These projects had been put on hold in the past due to lack of funds.
He said the introduction of the bonds was part of the financial sector reforms that will put Lesotho at par with the rest of the world.
“Lesotho has to learn how the world functions so that we can be able to actively participate in the global arena,” Thahane.
The next treasury bonds auction for this year is expected sometime in December with about M125 million expected to be issued by the central bank.