Quality of government bonds is declining

Quality of government bonds is declining

access_time2019-11-07 11:44:00

Throughout the world government securities are one of the most reliable ways of investing capital for both local and international investors because of their high liquidity and minimal risk.

In developed countries, funds raised by the state in this way are usually spent on increasing economic potential and infrastructure while in Georgia the amounts earned through government bonds are used to service current liabilities.

Economists consider the lack of a secondary bond market as a problem while  the primary securities  market  is controlled by banks and access to them is closed for private investors.

 

“If a private and legal person wants to purchase government securities, then he should use mediation from banks that decreases the interest in buying bonds. This is a big problem that hinders the development of the  financial market. The state prefers to deal with banks as it’s an easier and more convenient way, ” the  financier Mikheil Tokmazashvili notes.


In Tokmazashvili’s words,  commercial banks buy bonds and then sell them  but this service is  not in  demand as it  reduces the profit for potential investors.

The  financier Vakhtang Khomizurashvili believes that the absence of a secondary market for government securities scares foreign investors. 

“If a foreign investor wants to buy government bonds, the banks will set such unacceptable conditions that will make this deal unprofitable. In the current  situation, the quality of government securities is seriously falling while the National Bank is not going to  form a secondary market, ”he points out.

 In 9 months of 2019, the National Bank has sold securities worth GEL 25.2 million mainly to commercial banks.

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