Bond market could expand pool of funds for state
* Foreign investors likely to be excluded
* Government keeps tight rein on economy
* PM open to starting bourse, but will take time
By Aaron Maasho and Drazen Jorgic
ADDIS ABABA/NAIROBI, May 29 (Reuters) – Ethiopia is seeking to create a secondary market for local currency Treasury bonds, possibly in a year or so, the World Bank said on Friday, a move seen as a cautious step towards liberalising one of Africa’s fastest growing economies.
Ethiopia, once brought to its knees by communist purges and famine, has become an increasingly attractive destination for foreign investors although the government tightly controls what sectors they can invest in. There is no stock market.
Prime Minister Hailemariam Desalegn told Reuters last month that Ethiopia was open to having a bourse but said it would take time.
Lars Christian Moller, the World Bank’s lead economist and programme leader for Ethiopia, told Reuters the World Bank and the International Monetary Fund had offered advice to Ethiopia’s central bank on developing a secondary debt market that could help the government raise funds.
A spokesman for the central bank, the National Bank Of Ethiopia, had no immediate comment when asked about the plan.
“The benefit from the goverment’s perspective is that you can tap into more investors, so in that sense you can run a higher domestic fiscal deficit,” Moller said.
That could help the state keep up the pace of its ambitious infrastructure investments, which have pushed annual growth to about 10 percent and built new roads, railways and dams.
A secondary bond market could start in about a year but foreigners would most likely be barred, Moller added.
Foreigners are already blocked from investing in banks or retail, while the telecoms industry is a state monopoly.
Investors in Ethiopian Treasury bonds are mostly state institutions which keep the debt to its maturity, which means the government has firm control on setting interest rates. The last transaction made on the interbank market was in 2008.
Under plans for a secondary bond market, the price of traded debt would be driven by market forces not only the central bank.
“That would be an important further step in the direction away from the 1991 communist socialist planning mode to the market-based approach,” Moller said.
But there is no sign that other financial restrictions would be lifted. Banks must now invest the equivalent of 27 percent of their loan portfolios in low-yielding state bonds, used to fund development but which experts say hinders lending to business.
A secondary bond market, where market rates prevail, would expand the pool of funds for the government to tap by drawing in a broader range of private investors beyond the banks.
Last year, Ethiopia tapped the international bond markets for the first time with a $1 billion Eurobond.
The prime minister said in May, during a vote in which his EPRDF coalition extended its quarter century in power for another five-year term, that he did not rule out setting up a stock market but businesses need time to mature.
“What matters is that you should have a strong private sector before having a stock market,” he told Reuters on May 24.
(Reporting by Drazen Jorgic and Aaron Maasho; Editing by Edmund Blair and Andrew Heavens)
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