GOVT RECEIVES E127.782M IN BIDS

MBABANE - Government’s latest issue of multiple bonds recorded a reduced level of demand.

During the past month, the Central Bank of Eswatini (CBE), on behalf of government, issued multiple bonds of various tenors (three, five, seven and10 years) totalling E200 million. According to the CBE’s recent economic developments for the period of May and June this year, a total of E127.782 million was received in bids representing a bid cover ratio of 64 per cent. Of these, E70.112 million was allotted, giving an allotment rate of 35 per cent.

Strength

The bid-to-cover ratio measures the strength of demand in an auction for government securities. A high ratio indicates a healthy level of demand for the securities in question. Commercial banks are said to have continued to dominate participation in government securities on the shorter end of the yield curve. Non-bank financial institutions dominated on the longer-term securities. Analysts say government bond auction results are an important short-term driver of the fixed income markets as they provide insights on the demand for securities by market participants. “Strong auctions are good for sentiment and could indicate real buying to come into the market if any institutions missed out on buying in the auction because they didn’t bid high enough.” A government bond is simply a type of debt-based investment, where you loan money to a government in return for an agreed rate of interest.

Raise

Government uses them to raise funds that can be spent on new projects or infrastructure. When you buy a government bond, you lend the government an agreed amount of money for an agreed period of time. In return, the government will pay you back a set level of interest at regular periods, known as the coupon. Meanwhile, the CBE report indicated that preliminary figures as at the end of June 2021 showed that total public debt stood at E25.9 billion, translating to 36.5 per cent of gross domestic product (GDP). These figures are still above the International Monetary Fund threshold of 35 per cent. Outstanding public domestic debt was recorded at an increased E16.1 billion at the end of June this year. This is an equivalent of 22.7 per cent of GDP.  
When compared to the E15.8 billion recorded in May 2021, it shows that public domestic debt increased by 1.9 per cent in the month under review.

Advance

The increase was a result of an additional E500 million CBE advance accessed by government during the month being reviewed; a E100 million suppliers’ bond issuance as well as Plain vanilla bonds issuances. The increase was, however, offset by a E347 million plain vanilla bond maturity during the month under review. This shows a marginal increase of 1.6 per cent from the revised figure of E25.5 billion recorded in May 2021. The increase in total public debt is due to increases in both external and domestic debt. The figures show that public external debt stood at E9.8 billion as at end of June 2021, an equivalent of 13.8 per cent of GDP. This shows that public external debt marginally increased by one per cent when compared with the previous month.

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