No local firms in foreign reserves value chain
Keikantse Lesemela | Wednesday March 12, 2014 14:50
The bank of Botswana Act establishes the legal framework for the management of the foreign exchange reserves.The bank of Botswana Act establishes the legal framework for the management of the foreign exchange reserves.
The Act provides that the bank shall be responsible for establishing and maintaining a primary international reserve (liquidity Portfolio), which shall in general consist of liquid short-term assets.
Minister of Finance and Development Planning, Kenneth Matambo told parliament that currently there are no locally based financial institutions participating as brokers or agents in Botswana’s foreign reserves value chain.
“Only one locally based financial institution applied for participation in the past but could not meet the criteria,” said Matambo. He explained that even though there is no locally based financial institution participating, the system does not discourage financial institutions from participating as long as they meet the criteria.
Botswana’s foreign exchange reserves stood at P69 billion as at November 2013.
Matambo said the employment of external fund managers, brokers and other counterparties, whether resident in country or abroad, is based on the capacity and where applicable external ratings assigned by reputable rating agencies.
“This is done to ensure that only institutions with requisite standing and capacity are employed for the reserves management function,” he said.
Matambo noted that the foreign reserves are available to Botswana investors and government to purchase foreign goods and services that can be used in productive investment in the economy.
“The bank of Botswana manages the foreign exchange reserves to ensure that they are safe and secure and can be called upon by Botswana investors and government when the opportunity for productive investments arises”.
However the foreign reserves are not invested locally because the economy does not have the capacity to absorb all of the funds. “This is why there is excess liquidity which the bank of Botswana continues to address”.
The foreign exchange reserves of any country, by definition, are asserts held by central banks or monetary authorities in foreign currencies and are used to purchase foreign goods and services as well as to pay off the country’s foreign currency debt obligations.
Botswana’s foreign exchange reserves have arisen due to past balance of payments and government budget surpluses resulting from prudent public expenditure programmes.
Part of the foreign exchange reserves are reflected in excess liquidity that has characterised the local economy which the Bank of Botswana has absorbed through the issuance of Bank of Botswana certificates.
Matambo was responding to a question from the MP for Shoshong Phillip Makgalemele who wanted to know whether any locally based financial institutions benefit as brokers or agents in Botswana’s foreign reserves value chain and why these reserve funds are not invested locally given that financial institutions in Botswana have matured over time and such a move could help re-energise the economy.