BoB ‘cashes in’ investments to support reserves
Lewanika Timothy | Monday June 29, 2026 06:00
Under a section of the Bank of Botswana Act, the central bank is entitled to periodically move funds from the Pula Fund into the Liquidity Portfolio, which is a section of the foreign exchange reserves housing funds required for the country's short-term needs. In 2013, the BoB moved a record P21 billion from the Pula Fund in order to meet the country's spiralling import bill and also enable Botswana to meet its external obligations, which include payment of interest and principal on external debt.
The central bank’s Annual Report for 2025 shows that despite strong financial returns in international equity and bond markets, substantial withdrawals were made from the Pula Fund. The withdrawals were made to replenish the liquidity needed to finance imports.
In its annual report, the bank's directors shared that investments in bonds and equity enjoyed fattened market returns, with the yields climbing above 14%. But despite these mouthwatering returns, the country’s fiscal position forced the bank to liquidate some investments to remedy dwindling levels in sections of the foreign reserves required for short-term needs in the economy.
“For the year under review, there has been substantial drawdowns of foreign exchange reserves to meet the foreign exchange needs of the economy, as receipts from diamond sales remain subdued,' the bank's directors revealed. “This necessitated withdrawals from the Pula Fund to fund the Liquidity Portfolio and hence a lower level of foreign exchange reserves as at year-end.”
Between March 2024 and March 2025, foreign reserves dipped by P18.4 billion, threatening the country’s ability to pay for exports. The central bank made several attempts to protect the reserves through increasing the threshold for trade with banks, through changes in margins and new rules for bulk purchases.
These moves came as Botswana’s foreign exchange reserves continued to weaken amid a prolonged downturn in diamond sales, the country’s principal source of foreign exchange earnings.
The bank shared that in most instances, equity portfolios returned above 23%, which ordinarily is an incentive to hold long-term positions, in order to boost the foreign exchange trajectory.
“The Pula Fund, which is invested in high-return assets, recorded a strong market gain of 14.3%, mainly reflecting robust equity market performance during the year,” directors noted.
Bond markets also recorded strong returns during the year, although below those of equity markets. Overall, equity portfolios within the Pula Fund returned 23.2% whilst bond portfolios increased by six percent, directors revealed
On Wednesday, BoB executives shared that left alone, the Pula Fund could generate substantial contributions to foreign reserves. The central bank's acting director for Financial Markets, Otsile Moduka, shared that the BoB had a strong investment plan that could yield significant returns for the Pula Fund if it were given time to yield.
Last year, the central bank revealed that its decision to include more emerging markets in the list of where the country’s foreign exchange reserves can be invested has paid off over the years in terms of diversification and optimisation of returns.
BoB initially included emerging markets in 2017, and according to the BoB’s Annual Report for 2024, the total number of eligible global markets where the foreign exchange reserves can be invested rose from 22 to 27.
The new markets included Mexico, Indonesia, Colombia, Romania, and Hungary.