T-bills (OVDP) Financing

The consequences of NBU direct financing had proved that the elimination of this mechanism was required to provide a sound commitment to lowering inflation. Ukraine’s T-bill market was created in the second quarter of 1995. The terms of circulation were 1-, 2-, 3-, 6-, 9-, 12- and 18-months. The new bonds had fixed redemption date, and were structured as short-term and long-term securities. Most of the long-term securities have been purchased by the NBU.

Figure 7. Deficit Financing Sources by Origin % Source: State Treasury, UEPLAC. Calculations: ICPS

In 1996 T-bills financing had reached the level of some 23% of the total. The discount version of T-bills was introduced in May, 1996. Also the secondary market was established. Access to Tbills was secured for foreign investors in the fall of 1996. Strong inflow of funds started.

Figure 8. Nominal Domestic Debt Stock and Effective Rate of Return mln UAH (left scale), % annual rate (right scale) Source: State Treasury, State Statistics Committee. Calculations: ICPS

The performance of T-bills markett was relatively positive till mid-1997. After the Fall of 1997, foreigners began to withdraw their funds from this market and NBU purchases grew to be the majority share.

In 1999, the current deficit was financed by means of domestic loans. Until the beginning of December 1999 the government issued OVDP (T-bills) totalling to 2048 mln Hrn. The growing volume of domestic financing is to a large extent being caused by the shortage of external sources of funds. Because of the crash of the domestic borrowing market in August 1998, the NBU had remained the major buyer. After the approval of law giving the National Bank a new status, direct purchases of T-bIlls for budget financing was legally prohibited, thus forcing NBU to transfer T-bills through the secondary market using Oschadbank as a primary buyer.

Date: 2015-02-28; view: 673