Zim to establish bond market

via Zim to establish bond market – DailyNews Live 7 August 2015 by John Kachembere

HARARE – Reserve Bank of Zimbabwe (RBZ) governor John Mangudya says the country is ready to establish a bond market.

“The bond market would be an avenue for the intermediation process through the mobilisation of long-term savings and channelling them to the needy productive sectors of the economy,” he said in his mid-term monetary policy statement on Wednesday.

Mangudya noted that a vibrant and liquid bond market will also facilitate the development and deepening of the domestic financial system.

“Liquidity is critical in the secondary bond market to allow investors to move in and out of their positions without challenges. Once affordable funding has been availed to the productive sectors of the economy, the Reserve Bank expects improvement in capacity utilisation and an increase in exports — a major source of the much needed liquidity,” he added.

This comes as the Zimbabwe Stock Exchange last year indicated that it was working on establishing a bond market in the country.

A bond market involves the issuance and trading of debt securities in a financial market where participants can issue new debt, known as the primary market, or buy and sell debt securities as the secondary market.

This is usually in the form of bonds but it may include notes and bills with the primary goal to provide a mechanism for long-term funding of public and private expenditures.

In mature markets the bond market plays a critical role in the mobilisation of long-term financing for government, quasi-government and the private sector needs.

Market experts say in the wake of serious liquidity constraints facing the productive sectors of the economy due to the short-term nature of bank loans, the bond market can play a significant role in availing long-term for development of the economy.

“Due to high levels of nonperforming loans, banks have increasingly reduced their lending to the productive sectors with most of them focusing on individual salary-based consumptive lending. It is against this background that the bond market has a major role to play to fill the financing gap,” said Mangudya.

The major participants in the bond market include local institutional investors such as pension funds and insurance companies, and foreign investors.

The productive sectors of the economy require long-term funding to replace antiquated and obsolete machinery and employ modern cost-effective production techniques that enhance production and product competitiveness.