The Bank of Sierra Leone (BSL) will, for the first time, sell 2-year bonds to the public on November 20, according to a release from the bank. Treasury Bearer Bonds/Treasury Bonds and Treasury Bills are basically government debts sold to the public. Government uses these borrowing instruments to raise revenue and pay back with interest. Investors go through the primary dealers the commercial banks and discount houses. The sum of Le.10 billion will be on offer for the benchmark bond on Friday this week.
The 2-year bond sale will be historic for the Bank of Sierra Leone or the central bank. For the first time, non-residents will participate in the bond market and buy bonds with extended maturity period of 2 years beyond the usual one year maturity. While it will be the first time for both foreigners and residents to participate in the sale of bonds, the bank had been trading in 2-year bonds with the National Social Security and Insurance Trust (NASSIT). This was based on a bilateral agreement between BSL and NASSIT.
Trading in bonds is risk free investment. This is why commercial banks and discount houses are investing in it even though the interest rates have fallen from double digit to single digit. The interest rate that cleared the 1-year bond market on October 30 was 5 percent per annum, the bank stated on its website.
In July 2014, Finance Minister Dr. Kaifala Marah mentioned in his supplementary budget to parliament that Government intended to introduce the 2-year bond to raise revenue to fund rural electrification projects in all the districts costing over US$100 million. The 2014 target for the 2-Year bond sale was Le.60 billion. This was abandoned as Ebola cases increased daily in July and the following months last year. Attempts were made to introduce the 2-year bond earlier this year but it did not work.
Selling the bonds is one thing and servicing the debts is another. “The cost of servicing these debts has fallen in recent years due to the continuous decline in domestic treasury bill rates,” Dr. Marah stated in his 2016 budget to parliament last week. “Domestic interest savings was Le.43.3 billion for 2013 and Le.118 billion in 2014 and is projected at 40 billion by end 2015.” Interest payments on Government securities, another name for treasury bills and bonds, increased in 2014 to Le.118 billion as Government needed more money to fight Ebola and addressed issues relating to salary payment.
Treasury bonds were first introduced in the operations of the central bank in 1993 with a one year term of maturity. Treasury bills were introduced in 1964 with a 91 day term of maturity.
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