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Government’s bonded debt jumps to $94B
The Bank of Guyana
…Treasury bills issued to sterilize excess liquidity – BOG
The Central Government’s bonded debt jumped by 13.2 percent from June 2009 to June 2010 to bring the new figure to $94.76B.
In its half year report, the Bank of Guyana attributed the rise to “an increase in the issuance of treasury bills to sterilize excess liquidity”.
According to the report, the outstanding stock of Government domestic bonded debt consists of treasury bills, debentures, bonds and the CARICOM loan. The increase from one year earlier reflected the expansion in the stock of outstanding government treasury bills. Meanwhile the CARICOM loan and debentures contracted.
Treasury bills are usually issued in three varieties based on the time span the bills take to mature: 91-day, 182-day and 364-day bills. The 364-day bills dominated the stock issued over the reporting period, accounting for 73.6 percent of the total treasury bills issued.
The end result is that the stock of treasury bills increased by 22.5 percent to $87.39B, including 91-day and 182-day bills as well. Meanwhile on the debit side, the redemption of treasury bills during the first half of 2010 increased by 41.53 percent to $65.46B.
Treasury bills are issued by the government through the central bank to entities wishing to invest their funds. Although the interest rates are not as attractive as those offered by commercial banks the bills are a relatively risk free investment.
According to one local economist, the Government issues Treasury Bills to meet a number of objectives. One of these is to cover budget deficits, another is to finance the redemption of maturing Treasury Bills. In other words they issue more Treasury Bills and use the funds generated that way to pay off the ones that have come to the end of their term.
Treasury Bills also help the government absorb excess liquidity in an attempt to control inflation.
The primary investors in Treasury Bills are the ‘finance houses’ who usually use idle funds to invest. The increase in issuance of Bills between June 2009 and June of 2010 leads to higher domestic debt and therefore debt servicing – $630M worth of debt servicing, making the 2010 half-year figures $3.73B.
The monies invested by the banks are locked down until the bills mature and as such is unavailable for lending.
One example of the investments being considered was included in the report which indicates that for the review period Republic Bank (Guyana) Ltd, redeemed some $975M in debentures.
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