The government of the Democratic
Republic of the Congo has decided to issue Treasury Bonds to finance its
short/long term operations. The main reason for a government (or a company) to
issue bonds is to diversify its sources of funding. Central bank regulation
limits the amount any bank can lend to a single borrower. This amount is
particularly true in the DRC where banks balance sheet are too small to finance
big infrastructure projects even through credit syndication.
The maturity to be offered are 3,6
and 12 months for “bons du trésor” and above 12 months for
« Obligations ». “Bons du trésor”
can be regarded as T-Bills in other countries although they won’t be auctioned
off to investors at a discount to par. The “obligations” will be working more
like your regular T-Bonds. The bonds will be issued in Congolese Francs.
There are several issues in my
opinion in issuing bonds in the current situation. The most obvious one is the
lack of trust in the local government. What will happen if the government fails
to pay its debt at maturity? The treasury could print more money to fix the
issue, right? The issue with printing more money is that the currency will lose
its value and the investors their money. As a consequence, the investors will
request higher yield to compensate the potential inflation.
Another issue is linked to the
purpose of those bonds. What will the money be used for? The reason I am asking
that is that the bonds will be issued in the local currency but the country is
dollarized at more than 85%! If the
government raises money to pay for expenses that will be probably in USD
dollars then they will increase the demand for foreign currency on a market
that is already extremely tense (we will come back to this in a different
article)
My last observation and I am sure that we could find
many more is related to the political situation in the DRC. It is difficult to
imagine investors purchasing DRC long-term debt not knowing what will happen in
the near future. Uncertainty is very bad for business in general and it will
certainly be a major factor on either or not these issuances are a success or
not…
