MASERU — The Central Bank of Lesotho (CBL) says it will next month introduce three and five-year treasury bonds in a bid to develop the capital market.
The treasury bonds will be introduced to the market on September 15.
A bond is a marketable, fixed interest government debt security considered a safe form of investment.
Governments and large corporations often use bonds to borrow cheaply from the public.
The bonds are initially sold through auction and after that they can be sold on the secondary market.
This is the first time that the government of Lesotho is introducing treasury bonds that are attractive because of their low risk.
The government says it expects to raise about M250 million from the domestic market by the end of the year.
The money will be used to finance the government’s budgetary deficit which had by June risen to 26 percent up from the initial 8.8 percent that was forecast in the first quarter.
The central bank said the bonds will be issued in two batches in equal amounts of M125 million in September and November.
The CBL director of financial markets, `Mathabo Makenete, said the introduction of treasury bonds will help stimulate the local money market.
“The purpose of introducing treasury bonds is to develop the domestic capital market and to provide a benchmark for long-term financing,” she said.
Makenete said bonds were a long-term investment facility which will require people to place their investments for the long term while providing domestic financing for government budgetary purposes.
“The domestic financial market can serve as an alternative for other sources of government revenue such as Sacu receipts, domestic taxes and external debt,” she said.
Receipts from the Southern African Customs Union make up about 60 percent of Lesotho’s government revenue.
In his budget speech earlier this year, Finance Minister Timothy Thahane said the government should look into other sustainable sources of funding.
Makenete said the move by the central bank is also meant to encourage local corporations to issue bonds to fund their expansion programmes.
“The issuing of treasury bonds will also allow the central bank to carry out its mandate of maintaining steady prices,” she said.
The central bank can use bonds to control the amount of money circulating in the economy in a bid to keep a lid on inflation.
The bank said the issuing of treasury bonds will be based on the same system that the CBL uses to issue treasury bills which are short-term investments with maturities of between three and 12 months.
The head of investments and market operations at the central bank, Bohlale Phakoe, said bonds can be bought by private investors and large corporations.
“The money market in Lesotho is at a developed stage. Commercial banks are already offering various money market instruments,” he said.
Phakoe said there will be competitive bids with a minimum investment of M100 000 and non-competitive bids with minimum investments of M5 000.
He said investors can forward their bond applications at four main commercial banks around the country.
“The bonds will be accessible to everyone who has the minimum amounts required. The electronic system that we have introduced requires the use of bank accounts,” Phakoe said.
Bonds are a long-term investment facility but one can disinvest after at least 75 percent of the holding period has passed.
Investors who wish to disinvest can do so by selling to other bond holders.
The central bank will come up with a mechanism to assist in the pricing of bonds or bills in the secondary market.
Phakoe said both treasury bills and bonds can be pledged as collateral in loan agreements with commercial banks.