Investors’ appetite for long-term instruments is fast picking as evidenced by Reserve Bank of Malawi (RBM) data which shows a slow down in uptake for Treasury bills applications while uptake for Treasury notes is on the rise.
The development, according to analysts, is due to the attractive rates offered on the long term instruments.
In an interview on Tuesday, investment and market analyst Cosmas Chigwe said the growing demand for long-term instruments is due to the attractive rates placed on long-term securities.
“Monetary authorities are simply placing and accepting much higher yields and more applications on long-term securities to force the market to place their investments in the long-term to effectively restructure their debt,” he said.
According to data contained in Bridgepath Capital Limited economic report for June, total applications for Treasury bills have decreased by 14.25 percent, from K18.72 billion in June 2020 to June 2021.
On the other hand, Treasury notes applications increased by 711.66 percent to K132.30 billion in June 2021 from K16.30 billion in May though year on year it declined by 20.92 percent.
In terms of yields, Treasury bill yields decreased to 12.1 percent in June from 12.2 in May while Treasury notes continued to increase to 19.66 percent in June from 19 percent in May.
In recent times, the Treasury has shifted focus to long-term borrowing, moving away from short term borrowing, a development analysts have described as a positive move towards debt restructuring.
Bridgepath Capital Limited chief executive officer Emmanuel Chokani speaking in an earlier interview, noted that long-term debt instruments will help government to restructure its debt.
“This as part of government financing of debt is a positive move similarly to investors because if they want to sell they can sell. Analysts are looking for a home for investments and they will surely bid for it as part of their asset allocation but also looking for the good yields,” he said.
Similarly, Alliance Capital Limited research manager Bond Mtembezeka observed earlier that government’s shift to long-term instruments is the way to go now that government is struggling with debt.
Currently, Malawi’s debt stock has been on the rise, hitting a record K4.76 trillion by December last year, which is double the value of the last financial year’s fiscal plan pegged at K2.3 trillion.
Meanwhile, the World Bank has expressed fear over rising domestic debt which previously pushed Malawi into high overall risk of debt distress and is budgeted to continue rising sharply, which will increasingly reduce fiscal space.
Treasury has continued to finance fiscal deficits through domestic borrowing, reaching 5.9 percent of gross domestic product (GDP) and a budgeted 7.8 percent in the last financial and present financial year respectively.
The World Bank has since projected that domestic debt could exceed 30 percent of GDP by the end of this financial year and that the external debt-to-GDP ratio may also increase from its current level of 21 percent due to financing needs for Covid-19 response.