The Government Securities Market plays a key role in Tanzania’s economic development by providing a mechanism for the government to raise funds for public spending and investment projects, such as infrastructure, education, and healthcare.

The government securities market in Tanzania is providing essential capital for government operations and development projects. The shift towards longer-term bonds with high yields reflects investor confidence in the economy's long-term stability, despite inflationary pressures and the depreciating shilling. However, the rising borrowing costs could pose challenges for the government’s ability to finance projects without increasing debt servicing burdens. Ultimately, the performance of the government securities market plays a crucial role in shaping Tanzania’s economic development trajectory.

1. Treasury Bills Auctions (July 2024)

• Total Tender Size: The government offered a combined tender of TZS 253.3 billion.
  • These funds were primarily aimed at government financing (to support the national budget and development projects) with a small portion used for price discovery (helping determine the true market interest rate).
• Bids Received: The total bids from investors amounted to TZS 198.2 billion.
  • Figure Explanation: The bids were less than the tender size, indicating that the demand for Treasury bills was lower than the supply, possibly reflecting investor preferences for higher-yield, longer-term instruments (such as Treasury bonds).
• Successful Bids: Out of the TZS 198.2 billion bid, TZS 102.9 billion were successful.
  • Success Rate: This means approximately 51.9% of the bids were accepted by the Bank of Tanzania, leaving about 48.1% of the bids unsuccessful.
• Weighted Average Yield (July 2024): The yield on Treasury bills increased to 8.81% in July, compared to 6.75% in June 2024.
  • Implication: The rising yield indicates that the government is paying a higher interest rate to attract investors, reflecting increased borrowing costs, possibly due to inflationary pressures or higher demand for funds.

2. Treasury Bonds Auctions (July 2024)

• Total Bids Received: Investors placed bids totaling TZS 674.7 billion in the auction of long-term Treasury bonds.
  • Significance: The high volume of bids shows strong investor interest in longer-term, higher-yield government securities, which are seen as safer investments with good returns over time.
• Successful Bids: Out of the total bids, TZS 628.8 billion were accepted.
  • Success Rate: Approximately 93.2% of the bids were accepted, a much higher success rate compared to the Treasury bills auction. This reflects the stronger demand for longer-term bonds.
• Yields on Long-Term Bonds:
  • 15-Year Treasury Bond Yield: 15.05%.
  • 20-Year Treasury Bond Yield: 15.17%.
  • Explanation: These yields are significantly higher than short-term Treasury bills, reflecting the risk premium investors require for locking their funds for longer periods. This also suggests that investors are confident in the government’s ability to meet long-term obligations, and they expect economic stability over the bond's maturity.

3. Performance Trends and Implications

• Shift to Long-Term Investments: Investors prefer long-term bonds (with 15-year and 20-year maturities) over short-term Treasury bills, likely due to the higher yields they offer.
  • Example: Investors can earn a yield of 15.17% on a 20-year bond, compared to just 8.81% on short-term Treasury bills. This reflects investors’ desire for greater returns in an environment where inflation or currency depreciation may erode the value of short-term investments.
• Government Borrowing Costs:
  • The rise in yields, especially on Treasury bills (from 6.75% in June to 8.81% in July 2024), suggests that the government is facing higher borrowing costs. This could be due to rising inflation, increased demand for liquidity, or a higher level of public debt.
  • For long-term bonds, yields of 15.05% and 15.17% reflect the higher risk premium investors require to hold Tanzanian debt for 15 or 20 years.
• Government Financing: By raising TZS 102.9 billion in Treasury bills and TZS 628.8 billion in Treasury bonds, the government has access to nearly TZS 731.7 billion in total from the securities market in July 2024.
  • Significance: This capital is crucial for financing key development projects like infrastructure, healthcare, and education, which are essential for Tanzania’s long-term economic growth.

4. Implications for Economic Development

• Financing Development Projects: The funds raised through government securities are used to finance essential public services and infrastructure projects. This borrowing helps the government invest in areas that directly contribute to economic growth, such as roads, energy, water systems, and social services.
• Crowding Out Private Investment: High government borrowing and rising yields might discourage private sector borrowing by increasing interest rates across the board. This phenomenon is known as crowding out, where the private sector finds it more expensive to access capital due to higher yields on government debt, which competes for funds in the financial market.
• Attracting Domestic and Foreign Investors: The high yields on government bonds (15.05% and 15.17%) can attract both local and foreign investors. Foreign investors, in particular, might see Tanzania as a lucrative investment opportunity due to the high returns, especially when global interest rates are lower.
• Risk of Inflation and Debt Servicing: Rising yields can signal inflationary pressures, which may result from government borrowing or increased money supply. Additionally, the government’s higher borrowing costs mean more budget resources will be used for debt servicing (paying interest on debt), leaving fewer funds for development.

5. Summary of Key Figures:

• Treasury Bills Auction:
  • Tender Size: TZS 253.3 billion.
  • Bids Received: TZS 198.2 billion.
  • Successful Bids: TZS 102.9 billion.
  • Weighted Average Yield: 8.81% in July, up from 6.75% in June.
• Treasury Bonds Auction:
  • Total Bids: TZS 674.7 billion.
  • Successful Bids: TZS 628.8 billion.
  • Yields: 15.05% (15-year bond) and 15.17% (20-year bond).
• Total Government Borrowing (July 2024): TZS 731.7 billion from Treasury bills and bonds combined.