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Regional Snapshot of Government Bond Markets, Sub Saharan Africa

Regional Snapshot of Government Bond Markets, Sub Saharan Africa. Johannesburg, June 17-19, 2003 David Wilton, Vidhya Rustaman The World Bank. Objective. To provide snapshot of government securities (GS) markets in the region Follows Handbook framework

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Regional Snapshot of Government Bond Markets, Sub Saharan Africa

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  1. Regional Snapshot ofGovernment Bond Markets,Sub Saharan Africa Johannesburg, June 17-19, 2003 David Wilton, Vidhya Rustaman The World Bank

  2. Objective • To provide snapshot of government securities (GS) markets in the region • Follows Handbook framework • Based on survey responses from some Central Banks, Treasuries, and Ministries of Finance of ten countries • Preliminary study for an upcoming report and is currently in Draft form • Part of on-going study of challenges facing the region’s public debt markets

  3. Summary - Main characteristics of the market • Public debt securities development still in early stages in most countries • Disparity in level of development among markets • External > Domestic debt, except in South Africa, Mauritius and Namibia • Domestic debt is mostly local currency denominated • GS are mainly short term and fixed term, except in South Africa and Botswana (recently) • Mid-long term market is developing

  4. Size of the market Wide disparity in size of markets in the region Note:Data for 2002 except Tanzania, South Africa, Swaziland, Botswana 2003, Kenya & Nigeria 2001

  5. Size of the market Most countries in the region rely on external debt Note:Data for 2002 except Tanzania, South Africa, Swaziland, Botswana 2003, Kenya & Nigeria 2001

  6. Size of the market Reliance on external debt still widespread Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001- 2003

  7. Domestic GS compositionLimited non-marketable GS Non-marketable securities consist of : Tanzania – Government stocks ;Ghana –Tema Oil Refinery bonds (stocks not included) ; South Africa – Former Homeland Bonds ; Nigeria T-bonds

  8. Domestic marketable GS T-bills are dominant Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001

  9. Domestic GS compositionFixed rate securities dominant in EAP and MENA Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001 2001-2003. LAC T-bill breakdown unavailable.

  10. Domestic GS by tenorShort term securities dominant Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001

  11. Domestic GS by tenorLonger term securities most common in EAP Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001-2003

  12. Summary - Institutional framework & primary markets • Most countries formalize debt management objectives in the legal framework, Namibia has a draft debt management strategy • Debt management responsibility generally shared by Ministries of Finance and Central Banks • Supervision responsibility generally resides with Central Banks, and specialized authorities • Central Bank issues its own securities in 5 markets

  13. Debt management responsibility • Debt management responsibility is generally shared by Central Bank and Debt Management Units in Ministries of Finance or National Treasury • In South Africa, Reserve Bank is only responsible for auctions • DMU newly created in Mauritius, and Nigeria 2000 • Fiscal and monetary policy coordination is done through formal committees in six countries

  14. Limits on borrowing • Survey responses reveal clear limits on borrowing are specified in the legal framework. • Limits on borrowing from or selling securities to the Central Bank are common • In South Africa, it is not allowed. Botswana & Namibia only allow with special permission. • Nigeria-no restrictions on selling securities

  15. Legal limits on borrowing

  16. Market supervisionCentral Banks mainly supervise the GS market

  17. Primary markets • Auctions are main method of primary issuance • Most countries publish auction schedule, Central Banks are generally auction agents • Some have limits on participation in auctions • Primary dealer (PD) arrangements of varying kinds are being developed

  18. Annual GS issuing plan Mauritius, South Africa, Namibia, Botswana, Nigeria Annual issuance plan used, and securities issued at a pre-announced regular schedule Ghana-weekly (T-bills) Tanzania-monthly (volume is divided per week) Uganda- bi-weekly (T-bills) Zambia-weekly (T-bill) and monthly (bonds) Swaziland-no publicly announced issuing plan Other issuing plan

  19. Placement techniqueAuctions predominate • Auctions are the only method of placement • In Ghana, tap sales are used but only for the securities not taken up by auction • Multiple price auctions are most common • Only South Africa, Mauritius and Botswana use uniform price • Ghana uses both (uniform price for GGILBs) • Swaziland uses pre-announced fixed rate, but is moving towards uniform price. • Non competitive bids allowed in Ghana, South Africa, Zambia, Uganda and Nigeria

  20. Primary dealersPD arrangements are being developed • Primary dealer arrangements of varying kinds are used in 6 countries • Ghana, Mauritius, South Africa, Tanzania, Botswana • Nigeria has appointed PDs for GS • Most are obliged to take a portion of GS at auctions (except SA). • Only in South Africa do the PDs have exclusive right to bid at auctions (also Botswana).

  21. Summary-Secondary market • Banks are dominant holders of GS, as well as public sector. • Securities to retail investors issued in Botswana, planned in South Africa & Nigeria • Secondary market liquidity still shallow • Few restrictions on forwards, short selling and borrowing/lending securities • Repo markets are active in most countries • Withholding taxes still generally imposed

  22. Investor BaseBanks are the primary holders of GS in the region Note: Kenya includes government stocks (mainly held by “Other”), Swaziland – Other holders are primarily institutional investors

  23. Investor BaseDirect and indirect requirements to hold GS are commonplace Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001 -2003

  24. Secondary market liquidityGS trading activity is developing Note: Turnover is calculated as Annual trading volume/Year end marketable securities outstanding. *Based on estimated annual trading volume 2002

  25. Secondary market liquidityAverage trading of GS highest in East Asia Note: Turnover is calculated as Annual trading volume (outright and repos) /Year end marketable securities outstanding. Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001 and 2003 (which have provided data varying from end 2001-2003)

  26. Secondary market liquidityOutright trading in GS still shallow Note: Turnover is calculated as Annual trading volume (outright and repos) /Year end marketable securities outstanding. Data is based on simple averages of countries in the World Bank/IMF Survey, 2001-2003

  27. Repo marketsRepo markets still developing in the region • In Mauritius and Tanzania, only the Central bank uses repos;Namibia has no repo market

  28. Trading possibilitiesFew restrictions on trading but limited activity Note: *only in FX

  29. Tax regimeNeutral and simple policies most desirable *soon to be introduced

  30. Summary - Infrastructure • OTC trading dominates. Three countries also use stock exchange trading of GS. South Africa uses bond exchange. • Securities accounts are predominant. • Some countries use RTGS with delivery vs. payment • Most countries use the Central Bank as the main securities depository.

  31. Settlement arrangementsReal time gross settlement developing *SDS = same day settlement

  32. Depository arrangements • Swaziland intends to phase out issuance of paper certificates • Central Bank is the central depository for GS, S. Africa is exception (central depository) • In Tanzania, Central Bank and DSE act as central depository for GS • Securities accounts predominant, except: • <15% of outs. GS in S. Africa and Mauritius • Bonds in Namibia (only T-bills are dematerialized)

  33. Achievements • Increasing emphasis on debt management in the region • Strengthening of the regulatory framework (laws on debt issuance, and creation of DMUs) • Improvements in infrastructure for GS ongoing

  34. Challenges • Enhancing public debt and cash management • Stimulating a more diverse investor base, especially term investors • Reduce reliance on non marketable debt • Lengthening maturities and developing a benchmark yield curve

  35. Thank you

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