Forex reserves exceed $10 billion

WANETSHA MOSINYI
Staff Writer | Wednesday June 11, 2008 00:00

 

The unprecedented growth was attributed to a 'buoyant' balance of payments by the Governor of the Bank of Botswana Linah Mohohlo when she presented the central bank's Annual Report for 2007 to the media yesterday.The forex reserves rose by 22.5 percent year-on-year to USD 9.8 billion at the end of last year.

In Pula terms, the reserves stood at P58.5 billion, which translated into a 26-month import cover. 'The increase of reserves in Pula terms also reflected the effect of the depreciation of the Pula against major international currencies,' the report says.

Despite the direct payments in foreign currency of Debswana's tax, royalties and other obligations to the Government into BoB's accounts overseas, commercial banks' net sales of foreign exchange to BoB still contributed to banking system excess liquidity during the year.

The reserves rose despite the credit squeeze that began as a problem in the 'sub-prime' segment of the housing market in the US and quickly had a contagious effect in global financial markets with consequences for liquidity, exchange rate movements, oil prices and the performance of the world economy. In the event, by year-end, the US dollar had plummeted against major international currencies, especially the Euro.The Bank of Botswana's deputy director responsible for financial markets, Poul Gundersen, says the depression of the US dollar that could have had a negative effect on Botswana's forex reserves was offset by rates of return from other asset class investments.

'The strategy we use is to diversify our portfolio by investing in different currencies and asset class vehicles,' says Gundersen. 'So when our US dollar equity is dropped, it does not affect the overall rates of return on our reserves.' 

BoB says some efficiency measures were undertaken in the management of the foreign exchange reserves relating to clearing and settlement, correspondent banking relationships, real time portfolio valuation and performance measurement, among others.BoB's Investment Committee meets regularly to review developments in international financial markets and to make relevant adjustments to the investment portfolios in line with its investment guidelines.

'Consistent with past practice, relations with external fund managers and other service providers were reviewed through regular meetings and consultations on matters of mutual concern,' BoB says.

On the domestic front, the rising international commodity prices added to demand-driven inflationary pressures resulted in a reversal of the downward trend in inflation that occurred during the first half of the year.

It was in this context that BoB adopted theme topic 'Botswana's Framework for Macroeconomic and Financial Stability in Supporting Sustainable Economic Growth' for its 2007 Annual Report, which points to the importance of the coordination of monetary, fiscal and exchange rate policies.

The central bank says this is meant to avoid disruption of the stability of the financial sector, which would ultimately affect economic performance at the national level and, in the case of major economies, global growth.BoB says while the country felt the effects of rising food and oil prices, there was little immediate fallout from the onset of the credit crunch in the US, although risks remain going forward.

But BoB warns that overall, if the looming threat of a recession in industrialised economies is not averted, the international environment is likely to impact adversely on reserves management rates of return.

During the year under review, the net income of BoB stood at P2.98 billion.