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The National Bank of Ethiopia (NBE) will launch a secondary market in the next fiscal year to unlock new financial sources for the private sector, which has been reliant on Government Treasury Bill tenders (T-bills).
The government currently tenders treasury bills via the National Bank of Ethiopia to compliment its budget, rather than borrowing directly from the central bank. T-bill tendering was instrumental to stabilize monetary policy.
Yohannes Ayalew, Chief Economist and Vice Governor of NBE, said that the launch of the bond ( secondary) market will enhance the monetary system. Growth of the bond market will in turn stimulate the T-bill market and foster competition between the two markets.
Yohannes explained that the secondary market can also strengthen the monetary policy of the country.
The bond market has a longer maturity period than T-bills and offers attractive interest rates.
The bond market, that will become the first for the country’s capital market, will also be an alternative financial source for domestic investment.
It will also serve as a financial reservoir for the private sector to secure capital for investment or to invest in bonds for profit.
Ethiopia at present has no capital market to transact stocks and bonds in the secondary markets. The bond market provides a means by which to sell and trade bonds in the secondary market to enable participating governments, institutions and companies raise long term capital.
Currently, the private sector is forced to issue new share sale to the market in order to solicit capital to expand investments. However, the bond market will create the opportunity for companies and lenders to provide corporate bonds with long¬-term maturity.
Experts said that the secondary market will also contribute to investment, providing an alternative to direct loans credited from financial institutions.
Yohannes said that the new market will be established in the first year of the second five-year Growth and Transformation Plan. In recent years, NBE undertook several studies on transforming the capital market.
Yohannes noted that the bank is in the final stage to launch the system, having drawn on experiences in other countries.
The government has launched the first bond market via the state-owned Development Bank of Ethiopia (DBE) to fund the Grand Ethiopian Renaissance Dam project.
The government has been preparing to launch the corporate bond market, which includes the private sector, to expand the bond market that controlled by DBE.
Government and corporate bonds are the two types of bonds that will be provide by the government and the private sector, respectively when the bond market commences.
Bonds have usually higher interest than savings because of the long maturity time.
Ethiopia joined the international bond market in the current fiscal year, selling a bond worth one billion US dollars to western investors.