GOVERNMENT will cut the sale of Treasury bills by half after yields climbed to a record high of K450 million ($40m), says Ministry of Finance deputy minister Christopher Mvunga.
Mr Mvunga said there was need to reduce borrowing as Government also cut on expenditure.
“As you reduce expenditure, the need for borrowing also reduces.
“The reality is we don’t want to crowd the domestic market. It is part of the effort to promote private participation in the domestic market,” he said.
In a press statement , Mr Mvunga also said Zambia, Africa’s second-largest copper producer, was seeking to cut spending and encourage private borrowing.
Mr Mvunga said the Bank of Zambia (BoZ) will offer K450-million ($40m) worth of Treasury bills at an auction this week, down from the K900 million on offer in January, when yields on the one-year securities reached 27 percent, compared with a rate of 14.49 percent for similar Kenyan securities.
The bank will also cut the amount of bonds it will put out to tender by 40 percent to K600 million.
President Edgar Lungu announced spending cuts in November 2015 as Zambia tries to rein in the deficit.
According to Finance Minister Alexander Chikwanda’s Budget speech in October, the Government was seeking to borrow K2.5 billion locally this year.
That’s about a third less than the amount budgeted for in the previous year.
The Bank of Zambia’s Treasury bill auction sizes have gradually grown since 2012, when it offered K350 million in January of that year.
The reduction in the bonds and treasuries the central bank is offering is the first in at least four years.
The yields on Zambia’s $1 billion Eurobonds due in 2024 rose two basis points to 15.47 percent by 11.18 am in Lusaka.
That compares with 14.69 percent for similar-maturity dollar debt of Ghana, rated a step lower at Moody’s Investors Service and Standard & Poor’s.
While Zambia has offered K900 million at Treasury bill auctions since October 2014, demand has been weak even as yields rose.
At the last auction in January, the central bank sold K900 million worth of securities.
Two weeks before that, the sale raised K232 million while inflation rose to a 12-year high of 21.8 percent last month.
Zambia’s budget has come under strain copper prices that the country depends on for more than 70 percent of exports languish near six-year lows and a power crisis cuts output.
The Government has run consecutive budget deficits that it has financed both locally and externally, leading to higher borrowing costs.