Public debt pile nears domestic limit
Mbongeni Mguni - Lewanika Timothy | Thursday June 12, 2025 12:11
Under its own statutory rules, government constrains its debt to 20% of GDP for domestic funding and 20% of GDP for external funding.
However, government, through the Bank of Botswana, has been on a flurry of debt raising activities in recent months, as the prolonged diamond downturn has eaten into public revenues, whilst commitments such as salaries and outstanding invoices have pressured the public purse.
Permanent Secretary in the Finance ministry, Tshokologo Kganetsano, told a parliamentary committee on Monday that the situation meant that fundraising efforts going forward would have to focus on external financiers.
The PS, however, said the borrowing would be made with certain policy caveats in mind.
“In terms of debt management, we are very close to the debt limit for local borrowings,” he said. “We are mindful of the problems other countries have encountered where they thought they could borrow their way out of trouble. “Borrowing is not the way to go when you are faced with a situation like this. “You can borrow to help alleviate the problems, but you cannot borrow with the view that once you have borrowed then you are out of trouble.”
Kganetsano said the solutions to the current fiscal crisis lay in diversifying sources of revenue, upping collections and changing choices even at personal level. The latter involves data showing that the two biggest drains on the country’s foreign exchange reserves are fuel and the retail sector.
“The question is are we going to borrow every month to fund consumption: is this sustainable and the answer is no. “That’s the reason we have to intensify on revenue collection and slow down on spending in a big way. “Once you become overborrowed as a country and fail to repay, the lenders take over control of your country and dictate what to do and what not to do,” Kganetsano said.
Prominent economist, Keith Jefferis, said the government’s borrowing strategies would have an impact on other players in the economy.
“Government has drawn down its savings and has maxed out its local borrowing capacity and has to resort to foreign borrowing,” he said on Wednesday, at the launch of Swiftly Finance, a purchase order financing platform targeting SMEs. “The shorter effect will be that it will ease pressure on the local capital market but the underlying structural challenges will still be there.”
The Bank of Botswana, acting as government’s agent in the capital market, has failed to meet its debt targets at each of the monthly auctions of government notes since July last year. Whilst the challenge was initially the high rates of returns bidders were demanding, analysts say of late, the issue is structural illiquidity in the market, a situation also reflected in rising interest rates for both deposits and loans amongst commercial banks.
“Crowding out used to be a phenomenon unheard of in Botswana; we used to have a problem of excess liquidity but now the situation has turned on its head,” Jefferis said. “Government is now chasing liquidity in the economy and the result is that the cost of capital will get more and more expensive.”