Tanzanian government securities are debt instruments issued by the government in exchange for money borrowed from the public. The investor will acquire interest upon maturity.
Tanzanian government has two types of securities, namely treasury bonds (T-Bonds) and treasury bills (T-Bills). T-Bonds are long-term securities that mature over a year while T-Bills mature in less than a year.
The securities are issued by the Bank of Tanzania (BOT) on behalf of the government. T-Bonds are in five categories with maturities of 2 years, 5 years, 7 years, 10 years and 15 years. T-Bills are issued in four categories with maturities of 35 days, 91 days, 182 days and 364 days.
Government securities in the country are traded in two markets: the primary market and the secondary market. The securities are first sold in the primary market at the Bank of Tanzania through the Central Depository System (CDS) and then listed at the Dar Es Salaam Stock Exchange (DSE) for secondary trading after being bought in the primary market. CDS is a system that maintains and processes Treasury bills and bonds transactions through the Government Securities System (GSS).
T-Bills are issued for the first time on a fortnightly basis and T-Bonds are issued on a monthly basis.
Benefits of Government Securities in Tanzania
Government securities provide an investor with a number of benefits such as:
- They are relatively risk free because they are issued by the government.
- They are transferable and negotiable.
- They can be pledged as collateral for a loan since they are low-risk securities.
- The rate of return is competitive.
- Investors are guaranteed a competitive return rate by the discounted price of the securities
How Government Securities Work
- One needs to open a Central Depository System securities account with the BoT from any brokerage to invest in government securities.
- Three passport sizes, three copies of a valid reputable ID and three copies of one’s TIN Number are required.
- Central Depository System at the BoT maintains and processes the securities.
How Government Securities Are Sold
An investor will deposit the investment funds with the broker of choice. The broker will participate in the BoT auction on behalf of the investor to buy the bonds in the primary market, or on the DSE to buy the bonds in the secondary market.
The minimum amount to invest in government securities is TZS 1,000,000 for T-Bonds and TZS 500,000 for T-Bills.
Who Can Buy Government Securities?
The East African Community residents are eligible to participate. According to the Foreign Exchange Listed Securities (Amendment) Regulations 2014, a trader is a person who resides consecutively, or whose centre of predominant economic interest is in Tanzania for twelve months or more.
Citizens of the East African Community can participate because the Amendment Regulations defines a member of the Prescribed Territory as a member country of the East African Community.
However, according to the Amendment Regulations, a resident within the Prescribed Territory can invest in government securities by meeting the following criteria:
- The total amount of securities acquired by residents from the Prescribed Territory does not exceed 40% of the securities issued.
- The Government securities acquired shall not be transferred to a Resident within twelve months of the date of acquisition.
How the Public is Notified of Auction
A press release is published five days before each auction through newspapers and CDS web portal.
After the the notice is issued, registered Central Depository Participants (CDPs) and their clients need to apply using tender forms, CDS/FORM/03 (Annex I). This form can be obtained from the BoT head office, branches, and BoT website and from the CDPs’ offices.
The minimum bid amount for Treasury bills is TZS 500,000 face value in multiples of TZS 10,000. Bidders are allowed to submit multiple bids for every maturity at different prices. The Bank of Tanzania reserves the right to accept or reject any or all-tender forms submitted in an auction.
BoT uses computerised auction system to allocate securities to the successful bidders. Each successful bidder shall pay the price she/he quoted.
Announcement of Results and Issuance of Bid Codes
Auction results are made available at the Bank of Tanzania website after the auction, CDPs also display the auction results at their offices. Successful bidders need to obtain bid result details (bid codes) from their CDPs. Bid codes are be used as a reference for payment of Treasury Bills through Tanzania Inter-bank Settlement System (TISS).
Payment of Successful Bids
Successful bidders shall pay for their Treasury Bills bids one day after the auction through their settlement banks.
Payment to the Investor (Redemption)
As an investor, you will receive 100 percent of payment due, which includes cost value and interest amount.
Income earned from the investment is subjected to withholding tax. If you are exempted from paying withholding tax, you need to provide to the Bank tax exemption certificates from the Tanzania Revenue Authority (TRA).
Government securities in Tanzania provide the most reliable and safest investment returns since they are backed up by government. However, you will have to find out the current interest rates from your broker.