Freetown, SIERRA LEONE – The Government securities market in Sierra Leone saw a noteworthy surge in 2022, with a Central Bank analysis revealing a substantial increase in its stock, surging by NLe4.3 billion (45.6%) to reach NLe13.8 billion.
According to the 2022 Financial Stability Report, marketable securities constituted a significant portion, accounting for 89.5% of the total. These marketable securities primarily serve to fund the budget deficit, while non-marketable securities, including 2-year and 3-year Treasury bonds, cater to financing specific infrastructural projects.
The report highlighted a notable rise in government securities holdings across all sectors during 2022. Predominantly, the Central Bank experienced a significant surge in holdings, soaring almost five-fold (+473.7%) due to purchases made through open market operations (OMOs).
Furthermore, commercial banks augmented their holdings by 10.4%, and the non-bank public increased theirs by 14.6%. Despite starting from a lower base, NASSIT’s holdings recorded a substantial growth of 53.8%.
However, the report underscored the absence of a liquid and robust secondary market for government securities in Sierra Leone. Investors commonly retain government securities until their maturity, indicating a limited secondary market activity where securities are traded post-primary market issuance.
The report elaborated that commercial banks, as counterparts in Bank of Sierra Leone OMOs, might have the potential to vend their government securities if the Central Bank purchases T-bills to infuse liquidity into the local currency interbank market.
Primary market auctions for government securities involve weekly auctions of 91-day, 182-day, and 363-day T-bills. Yet, the 91-day and 182-day T-bill auctions faced inefficiencies, often receiving limited or no bids, contrasting the mostly oversubscribed 364-day T-bill auctions, where commercial banks actively participate.
The yield of the 364-day Treasury bill surged notably by 685 basis points to 28.2% in 2022, surpassing the Marginal Policy Rate (MPR) increase but falling short in keeping pace with inflation. Consequently, the real rate of the 364-day T-bill turned deeply negative by the close of 2022 and early 2023, signifying economic challenges in managing the inflationary surge. ZIJ/18/12/2023