1st July 2023, Skopje – Government bonds are a stable and risk-free investment, a way for sound saving. Financial advisers have started to ever more recommend them as an excellent opportunity to invest considering the increasingly favorable conditions under which they are offered. As a Bloomberg analyst sees them, government bonds are more than just attractive. Auctions of government bonds have become that much captivating that they have started “breaking” the Internet. At the end of last year, for instance, US Treasury literally broke the Internet with the auction of one-year I Bond, when thousands of citizens crashed their website in the attempt to purchase bonds. Even Warren Buffett’s investment decisions prove that government bonds are desired in every investment portfolio.
Sound and safe government securities, considering the changed monetary policy of the central banks worldwide and the tightened financial conditions, have become popular investment, generating higher yields compared to many other financial products. Hence, for instance, if US bonds prior to the crisis generated yields lower than 1%, nowadays they generate yields of 4% or 5%. Global trends show a favourable period for investments in this type of securities.
Let’s turn to our capital market. Although it is less developed, a characteristic for a developing economy, a step forward was taken last week for the development of the capital market, i.e. the securities market, by publishing the Prospectus for the first auction of development bond for citizens. Development bonds for citizens are government securities, intended for the citizens, the goal of which is to mobilize funds from the private sector (the households), create new possibility for saving and investments by individuals, as well as develop the securities market.
First auction of development bond for citizens will be held on 13th July 2023. The amount to be auctioned is Denar 600 million, with Denar 10,000 nominal value of a single bond, two-year maturity and 5% coupon interest. Citizens can already apply for purchasing these bonds at the commercial banks across the country and pay in the amount they want to invest. Throughout the next two weeks, Ministry of Finance staff will be available to inform the citizens and assist them during the process of investing in the bonds. This column is also intended to inform the public by explaining the five reasons why to invest in this type of security.
First Reason: Exceptionally Favourable Interest Rate
Right now, the development bond for citizens, with 5% coupon interest and two-year maturity, is one of the most favourable securities on the market, as well as among the financial instruments in general. I will try to give a vivid insight into it with the following example: development bond for citizens is with a coupon interest, more precisely the interest the government pays to its holder is paid at several instances, as per the due dates set in the Prospectus. In the case of development bonds for citizens offered at this auction, the bond holders will be paid interest on 20th July 2024 and 20th July 2025. Hence, if you plan to invest Denar 100,000, the government will pay Denar 5,000 interest on each of the dates specified, or total earnings of Denar 10,000 for both years, accounting for 10% of the value invested. Upon bond’s maturity, the government repays the citizen the whole invested amount. Minimum amount to invest in a single bond is Denar 10,000. Moreover, the citizens will also have the possibility to trade the bonds on the secondary market, via the banks or directly on the Stock Exchange, depending on the supply and the demand.
Second Reason: Safe Investment
Investors consider the government securities as the safest investment instrument, since they are backed by the government as issuer, guaranteeing their safety and safe return on their investment. I would like to point out that since 2004, when the Ministry of Finance launched the issuance of government securities, institutional investors – banks and funds have always shown strong interest in investing in them, which speaks volumes about the quality of these securities. Now, the citizens can also ripe these benefits through an instrument designed particularly for them, with exceptionally favourable conditions in terms of both their maturity and the interest earned. Development bonds for citizens offer safety from yet another aspect – protect their savings against the inflation.
The procedure to invest in a development bond for citizens is exceptionally simple. The citizens are to visit any of the commercial banks and apply to participate in the auction, as well as make a payment in the amount they intend to invest. The application should be submitted to the respective bank one day prior to holding the action at the latest. Once the auction is completed, the applicants sign an agreement and the bonds are registered in their name and, upon their maturity, they are paid interest.
Third reason: Expanded Investment Portfolio via Developed Capital Market
Investments in the development bond for citizens will provide for expanding the investment portfolio and diversifying the risk as regards the citizens’ savings. In other words, they will become direct participants on the capital market, where they can decide on their investments, thus making a habit in terms of managing their own capital in future.
Introduction of the development bond for citizens is an innovation as regards the public finances and the financial market in our country. It is incorporated in our strategic documents such as the Financial Market Development Strategy and the Growth Acceleration Plan, thus also providing for mobilization of funds from the private sector in support of the country’s development, similarly to the Juncker Plan and other examples in the developed countries, as being repeatedly mentioned in my prior columns. Our national Growth Acceleration Plan is also aimed thereon, foreseeing an ambitious investment agenda for a longer time period by efficiently combining the public and the private capital. Plan also incorporates specific mechanisms aimed at boosting investments by the private sector, such as the public-private partnerships, the Guarantee Fund, as well as new types of government securities, which will, as per their purpose, contribute to accomplishing certain society-related goals.
In addition to the development bonds for citizens, it is planned for other instruments to be issued, all to the end of incentivizing the financing of development projects in the country, which will be destined for the banks, the pension funds and other institutional and legal investors, as well as the natural persons. Green bonds are to be also introduced, which will be intended to stimulate and support environment protection projects, as well as finance eco projects. Project bonds will provide for an alternative means to finance infrastructure projects, by which the institutional investors will be allowed to participate in infrastructure projects via listed securities.
All this will contribute to developing the capital market in the county, thus also boosting the investments. Investments will, in return, provide for boosting the economic growth.
Four Reason: Combatting Informal Economy
Last but not least, fight against informal economy is a considerably significant benefit therefrom. Informal economy is one of the main structural issues in our country. In fact, as per the estimates, almost one third of the national GDP is “consumed” by the informal economy, depriving all citizens from better living conditions, public services, public goods, etc. Cash, i.e. failure to track its movement, thus allowing the avoidance of paying taxes and duties, is the major cause of informal economy. We aim for reducing the cash in circulation buy issuing the development bond for citizens, thus stimulating the citizens to take the cash savings out from their mattresses and make a profit thereon. Citizens will, in addition to their funds deposited in the banks, be able to purchase bonds with cash at the respective commercial banks in the country, as per the existing legal regulations, thereby adhering to all international standards for combating money laundering and financing terrorism.
Fifth Reason: Investing in a Better Tomorrow, Economic Growth and Development
As the reader may notice, I begun with displaying the benefits this development bond yields for the individuals – the citizens. “Investing in a better tomorrow” is yet another benefit to the advantage of the individuals, which contributes to a prosperous society as well. In a recent interview, I was asked whether investing in securities of other countries is a better option for Macedonian citizens. This question captures the essential reason about the Government’s decision to issue development bonds for citizens. If an investment option is not offered to the citizens, than, they can invest their funds abroad. In that case, that country could invest these funds in its own infrastructure and other public goods, thus contributing to its development and providing for both higher living standard and better living conditions for the citizens thereof.
If explained in more details, funds under the development bond for citizens are intended for budget support, implying that they will be used for servicing the current needs, as well as the development Budget items. Given the fact that the 2023 Budget deficit is lower than the capital expenditures, as per the fiscal golden rule, the development bonds for citizens will be used for financing development projects, thus also boosting the economic growth. In other words, funds the citizens invest therein will be ultimately injected into the business sector. By injecting funds into the business sector, added value will be produced and created, thus also leading to increased productivity, scaled-up investments, job creation, payment of taxes to the state, which will, in turn, allocate more funds for investments in capital projects, improvement of the public services and better living conditions for the citizens. This is a vicious circle and ensuring a better tomorrow depends on all of us.
These are only some of the benefits from the development bond for citizens, and there are many more of them. I am glad that a large part of the citizens recognize them, already demonstrating considerable interest therein, even before the coupon interest rate is announced. There are two more weeks until the auction, thus, the citizens will have enough time to submit the respective applications. In the meantime, we will keep informing the public thereon, all to the end of simplifying the overall procedure.
Considering the afore-mentioned benefits, I would like to hereby emphasize that investing in the development bond for citizens is more than just an attractive investment. It is rather a reliable investment, guaranteeing a better future for all our citizens living here or in the Diaspora. Personal benefits will be yielded for the citizens, while also contributing to the common good and the country’s development as a whole. As the great American President John F. Kennedy said: “Ask not what your country can do for you – ask what you can do for your country”.