Mmegi Online :: Botswana can be regional financial hub – IMF
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Botswana can be regional financial hub – IMF

Botswana’s financial sector is sound and stable and has the potential to be developed into a regional financial hub that can facilitate foreign direct investments, the International Monetary Fund (IMF) reckons.
By Brian Benza Fri 11 Aug 2017, 15:23 pm (GMT +2)
Mmegi Online :: Botswana can be regional financial hub – IMF








In a country report released this week, the IMF said developing a regional financial hub can contribute to private sector development as it could adapt its services, regulation, and infrastructure to make investment by foreign investors easier and allow them to hedge risks.

The Bretton Woods institution believes this would enable capital to be efficiently channeled into investment projects.

“If the authorities conclude that such potential is worth pursuing, they could develop a strategy entailing measures to improve electronic connectivity, including having real time data from markets, order routing systems, and ability to clear and settle trades in foreign market,” reads the report.

The local financial system has grown rapidly over the years, with banks, the pension industry and the Botswana Stock Exchange having benefited from political and economic stability, savings from diamond exports, and fiscal surpluses.

Between 2008 and 2016, pension fund assets grew from 30% of gross domestic product (GDP) to 47% of GDP, facilitating a rapid increase in bank deposits and in stock market capitalisation, which almost doubled in this period. Similarly, Botswana’s insurance premiums increased from three percent of GDP in 2005 to 13% of GDP in 2016, making per capita insurance contributions amongst the highest in Africa.

According to the IMF, turning Gaborone

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into a financial hub would require that authorities modernise the national payments system by implementing the new Oversight Policy Framework and address gaps in the prudential and supervisory framework of non-banks financial institutions. “Monetary and fiscal authorities would also need to strengthen the clearing house to facilitate risk management in derivatives, net offsetting positions, and collection of collateral in the event of defaults,” the IMF advised.

While the financial sector is open and relatively well developed, the IMF believes there seem to be too many commercial banks.

As of end 2016, there were 11 commercial banks and two small state-owned statutory banks, with four banks holding about 80% of the banking system’s assets.

However, the Fund believes there seems to be room for consolidation, considering Botswana’s population of 2.1 million people.

All commercial banks are foreign-owned, including subsidiaries of pan-African groups. The IMF also suggested that Botswana’s financial stability framework could be usefully upgraded as data gaps and incomplete information on cross-border capital flows and growing interconnectedness with the non-bank financial sector may entail potential risks.

“Close cooperation among regulators and a proper assessment of macro-financial risks associated with banks’ large exposures will be important to improve the effectiveness of financial system supervision,” reads the report.

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