Pula Fund slips to lows
Mbongeni Mguni | Tuesday May 27, 2025 11:58
The prolonged decline in diamond receipts, coupled with steady imports and the lack of other strong foreign currency earners, has meant a slide in the foreign exchange reserves, of which the Pula Fund is the main anchor.
Foreign exchange reserves that are in excess of what is expected to be needed in the medium term are transferred to the Pula Fund and invested abroad. The latest Bank of Botswana (BoB) figures show that the Pula Fund dropped from P39.4 billion in January to P24.9 billion in February, the latter representing a level last seen in 2005. The Pula Fund was measured at P54.3 billion in February 2024.
The latest movements suggest that the BoB made a drawdown of the Pula Fund to boost the short to medium term foreign currency requirements in the local economy. The central bank is required to keep foreign currency levels to cover no less than six months of imports and drawdowns may be made from the Pula Fund for this purpose.
In January, the BoB increased its trading margin used for foreign exchange transactions to banks, from 0.125 percent to 0.5 percent, as a way of forcing the banks to trade amongst each other and with firms that are holding foreign currency.
The move was designed to reduce banks’ reliance on the BoB as their primary source of foreign currency, in light of the declining reserves.