High interest rates have increasingly led individual investors to buy the government’s treasury bonds, according to the latest report by the Ministry of Finance.
TIRANA, Feb, 17 – Albanians are increasingly putting their money in government-issued treasury bonds rather than saving accounts in banks due to higher interest rates offered by the bonds, according to Albania’s Finance Ministry.
These high interest rates have led people to buy a lot of government debt last year, according to the latest report by the Ministry of Finance.
Individuals bought nearly 11 percent of the bonds issued by the government in 2009, which in essence means that the government is borrowing from its citizens in order to finance its budget deficit.
Treasury bonds are known as the safest investment because, at least in theory, a government cannot go bankrupt.
They are also offering interest rates of up to 9.4 percent, which the banks cannot beat, especially during the economic crisis.
Statistics indicate the domestic debt the government owes rose from 400 billion to 415 billion leks during 2009. That’s about a 150 million dollar increase. About 10 percent of that figure, or 15 million dollars, were purchased by individuals.
Having noticed the increase in demand by individuals for these bonds, the government is changing the selling formula to allow individual investors to purchase a higher percentage of the bonds.
A new agreement between the Bank of Albania and the Ministry of Finance means that up to 50 percent of the bonds issues by the government can now be bought by the public.
Under the agreement in December last year, the Ministry of Finance and the Bank of Albania dropped by 20 percent the ratio of what banks buy in treasury bonds issued by the government.
Treasury bonds are first offered for purchase by the Bank of Albania. What the central bank does not buy, was, under the old system, offered 70 percent with competitive bids to second tier banks, and 30 percent with noncompetitive offers from individuals and businesses.
The new agreement provides that the amount will now be split in half, 50 – 50, between banks and individuals.
Usually, the Bank of Albania buys almost all bonds with a 3-6 month maturation period, while investors and banks are active in bonds with a maturation period of 12 to 24 months.
