Gov't debt costs to jump 80% on higher borrowings

Mbongeni Mguni | Friday March 12, 2021 13:07

Estimates from the Ministry of Finance and Economic Development seen by BusinessWeek indicate that the figure of P2.9 billion in the 2022/23 financial year compares to interest payments of just P1.1 billion in the 2018/19 financial year and P990 million the year before.

Finance Minister, Thapelo Matsheka in his budget speech last month, revealed that government would largely tap the domestic market to fund the expected P6 billion deficit in the 2021/22 fiscal year. Parliamentarians approved the expansion of government’s debt limit from P15 billion to P30 billion in September last year, with Matsheka saying reserves contained in the Government Investment Account had become drained due to COVID-19 related expenditure.

Other revenues will come from stronger domestic resource mobilisation which includes higher taxes, levies and tighter collections by the Botswana Unified Revenue Service.

According to the Finance Ministry notes, much of the higher interest costs are attributable to the domestic borrowing programme, which involves government raising funds from the local capital market through the issuance of Treasury Bills and bonds.

Beginning in November last year, the Bank of Botswana (BoB), which conducts government’s borrowings, has shifted from quarterly to monthly auctions of Treasury Bills and bonds, in line with the higher debt ceiling. Since then, the government has raised P5.4 billion, while the BoB has also introduced a 12-month Treasury Bill to complement the three and six month bills traditionally available.

Meanwhile, analysts at Ninety-One, an asset management and advisory firm previously known as Investec, described government’s fiscal position as uncomfortable.

“It is projected that the FY 2021/22 budget deficit which is forecast at around P6 billion will be financed entirely from borrowing as the government has run down its savings,” portfolio manager, Pako Thupayagale and analyst Leano Babitse, wrote in a recent commentary.

“This is a new and uncomfortable experience and the jury is still out as to whether in the medium to long-run this will be the norm or not. We think it’s more likely than not.”

They said while government hoped to bring down the deficit to between two and three percent in the next two fiscal years, lower growth and spending excesses would make this difficult.

“We worry that lower real and nominal growth coupled with likely expenditure side overshoots, exacerbated by necessary (and ongoing) COVID-19 relief funding (as well as other contingencies) will continue to undermine the government’s efforts to achieve fiscal consolidation at least in the short term,” the Ninety One researchers said.