Government to issue development bonds quarterly
The Treasury has said it would be issuing long-term development bonds each quarter for the next five years under the K1 trillion long-term development bond the government intends to generate from the local market.
This comes barely a week after investors positively embraced a 10-year infrastructure bond valued at K20 billion, which was auctioned on August 17 2021.
Results of the auction published by the Reserve Bank of Malawi (RBM) show that the government raised about K13.35 billion at a face value of K18.45 billion.
It further shows that the bond was oversubscribed with 33 applications amounting to a face value of K37.97 billion. Six out of the 33 bids were, however, successful.
In an interview on Monday, Treasury spokesperson Williams Banda said the bonds would be issued according to demands from projects.
“The plan is to issue the bonds quarterly, based on resource requirements, as submitted by contractors through the respective ministries, departments and agencies (MDAs).
“These resources will be used to fund the following five projects; Balaka Market- Nkhotakota-Nkhatabay Road (M5)-Kaphatenga- Dwangwa section, Ntcheu- Tsangano-Neno-Mwanza Road, construction of the aquatic complex at Kamuzu Institute for Sports, Jenda- Edingeni-Engalaweni- Manyamula road and the Dzaleka – Ntchisi – Mpalo – Malomo Road,” Banda said.
These and other projects estimated at about K1.351 trillion that would be run at intervals of between four to 54 months or four and a half years, to complete.
University of Malawi professor of economics Ben Kalua lauded the government for the initiative, saying the market needs such long-term instruments.
He played down fears that periodic issuance of such bonds would crowd out the private sector.
“It depends on whether the investors have an appetite for that tenor. In the past, we have seen that we don’t even have a yield curve because, in Malawi, investors tend to prefer lending short rather than long-term.
“Even if the government starts issuing frequently but it’s long term still; so, it may not necessarily result into crowding out of the private sector but it depends on the appetite of prospective lenders,” Kalua said.
The government is expected to raise K1 trillion from the local market over a period of five years to finance what it calls flagship projects.
Recently, the government issued a K32.3 billion three– year Treasury note (TN03YR050829) in which, out of 26 bids, 20 were successful at a weighted average yield of 18.99 percent.