IMF hands Botswana P3bn 'windfall'

Mbongeni Mguni | Monday September 6, 2021 06:05

Oiling trade: The country’s foreign reserves currently have nine months’ worth of import cover, just above the statutory six months’ cover required of the Bank of Botswana. PIC: MBONGENI MGUNI

The IMF reserves, known as Special Drawing Rights (SDR) are an international reserve asset created by the IMF to supplement the official reserves of its member countries. Each country has a share of the SDRs and earlier this month, the IMF board made fresh allocations to boost liquidity among all countries, as a way of fighting the pandemic’s impact on economies.

Bank of Botswana head of communications and information services, Seamogano Mosanako told BusinessWeek that the country had been allocated and received its share of the SDRs on August 23, 2021, amounting to SDR 189 million (about P3.02 billion).

Botswana can convert the SDR allocation to hard currency through an agreement with another IMF member and thus fund budget gaps and COVID-spending, or use the reserves to pay down foreign debt. The country can also use the allocation to shore up its own reserves which are currently at record lows due to COVID-19 related spending last year.

“The SDR allocation forms part of the official foreign exchange reserves,” Mosanako said in emailed responses to BusinessWeek questions. ‘The country can choose to convert part or all of its allocation to purchase hard currency such as the dollar, euro, pound or yen, and use the funds for budget support. “However, to do so will require the country to have an agreement with another SDR holding country to provide the usable hard currency.”

She added: “The decision to access the SDR allocations remains the prerogative of the Botswana government and can be considered alongside other available funding options.”

Officials at the Ministry of Finance and Economic Development had not responded to BusinessWeek enquiries on the SDR allocation and what it will be used for at the time of going to press this week.

IMF officials explained to BusinessWeek that while the SDRs are not treated as loans by the government, converting them into hard currency or lowering them in any way may attract interest charges from the IMF. An IMF media officer, Eva-Maria Graf shared IMF data with BusinessWeek showing the SDR interest rate had fluctuated from nearly 1.2 percent in 2019 to the current levels of about 0.05 percent.

If a country’s SDR holdings fall below the allocation from the IMF, a country is required to pay the interest rate on the difference between the two. For countries such as Botswana, where domestic bond yields on the longest-term papers available recently hit eight percent, converting the SDR could be a cheaper avenue for funding, even though the interest is charged in hard currency.

The finance ministry, with advice from the Bank of Botswana, is expected to soon decide on converting the new SDR allocation to hard currency, which would provide welcome relief in a year in which the budget deficit was recently revised upwards from P6 billion to P7.8 billion.