* 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)