By: Nghiinomenwa Erastus
All those planning to borrow/invest money into government bonds will have to physically walk to Bank of Namibia offices to get their ‘I Owe You’ certificates.
After 30 years of issuing debt instruments, the system is still based on paper and not digitised despite discussion and task force on 4IR.
Government securities are currently issued in a paper-based environment that does not conform to international standards.
According to a submission made in parliament early this month, Finance Minister Iipumbu Shiimi finally submitted the amendments to the State Finance Act of 1991 to effect electronic Government securities.
According to his explanation, the key hindrance to eliminating the issuance of paper certificates for government securities in specific sections of the 31 years old State Finance Act.
These are section 29 and section 30, which prescribe the issuance of physical certificates to the holders of Internal Registered Stock (local bonds) in particular.
“Once these sections are amended, as proposed herein, the government will be able to dematerialise all its securities and enable the issuance of electronic certificates,” he assured.
Domestic bonds will have the same administrative treatment as other instruments utilised to finance the Government, such as Treasury bills and foreign bonds.
Furthermore, Shiimi explained that the current practice of paper certificates is highly vulnerable to various risks, including legal, operational, settlement, and custody risks.
Without an electronic system, it is impossible to integrate government securities within the payment settlement and environment to facilitate simultaneous final and irrevocable delivery versus payment (DVP) as a settlement risk mitigation measure within the National Payment System.
“Therefore, to improve efficiency and effectiveness in the domestic money and capital markets in Namibia, it is imperative to enable the issuance of Government securities in an electronic form,” Shiimi motivated the amendment.
The Government is a critical player in the domestic market, accounting for more than 85% of outstanding bonds.
Given their substantial size in the domestic market, digitalising government securities is vital for an easy exchange or trading, enhancing liquidity.
Shiimi has also highlighted that the movement from paper to electronic is “a prerequisite for the successful roll-out of the proposed Central Securities Depository (CSD) in the country”.
The deployment of a modern CSD would serve as a cornerstone for broadening the Namibian money and capital markets and attracting international players in domestic securities.
The CSD would also enable market players to manage liquidity more proficiently and deploy repurchase agreements in the secondary market to trade government securities.
Shiimi said that once the State Finance Act is amended as proposed, the CSD will be operationalised according to its conditions, which the Ministry of Finance will issue under section 4(1)(f) of the Stock Exchanges Control Act of 1985.
He added that the dematerialisation of government securities would substantially increase demand by facilitating foreign participation and eliminating various operational risks.
Over the long term, this will subsequently reduce overall borrowing costs for Government while improving the liquidity of domestic securities, according to Shiimi motivation.
