Govt to put multi-billion pula bond on hold

MBONGENI MGUNI
Staff Writer | Friday June 18, 2010 00:00

 

The bond is to support this year's anticipated P12.1 billion budget deficit.

Government's coffers have also been bolstered by under-spending in the recurrent and development budgets approved by Parliament in February, saving between 10 and 20 percent of the funds released thus far this year.

A project prioritisation exercise aimed at reducing the immediate financial strain on government finances is also underway.

Further, the government can bank on the release of US$500 000 (approximately P3.5 billion), the second tranche of the US$1.5 billion African Development Bank loan, as well as its accumulated savings, which stood at P22 billion by the end of 2009.

Following announcements in the national budget last February, senior technocrats in the Ministry of Finance and Development Planning (MFDP) and at the Bank of Botswana (BoB) have been engaged in determining the quantum of the planned bond programme.

Last month, BoB said the government could, in theory, raise the entire deficit from the capital market, pointing out high market liquidity and the fact that Government is still within its statutory borrowing caps.

With that obstacle cleared, the government was expected to prepare documentation for approval by Parliament at its July sitting. The bond issuance programme, which follows the highly successful P5 billion one in 2008, would then have rolled out its first offer, with subsequent floats timed to support the deficit.

This week, however, it emerged that the planned bond issuance programme could be postponed to the November sitting of Parliament as discussions continue between MFDP and BoB on technicalities related to the bond programme. It is understood the decelerated spending thus far this year has also dampened the initiative's momentum.

Senior MFDP officials told BusinessWeek that spending cuts and project prioritisation had increased Government's elbow room in the discussions around the bond issuance programme. 'Also by the November sitting, ministries will have submitted their supplementary budget needs, if any, which the bond programme can cater for,' an official said.'The focus is on identifying ministries' spending needs in the medium-term period, rather than simply approaching the market for funds without knowing exactly what these funds will be for. It must always be borne in mind that the bond issuance programme comes at a significant cost to Government.'

The Acting Permanent Secretary at Finance, Taufila Nyamadzabo, could not rule out the possibility of the bond issuance programme being presented in November, stating that intensive consultation with BoB was continuing.

Nyamadzabo said on finalisation of the consultation, various statutory steps would have to be taken before a document could be put before the august House which, he emphasised, has the power to decide when to consider such proposals.

'The consultation is still being done and it's not yet ready to go to Parliament,' Nyamazdabo said. 'If it does go in July, it will be very late in the day because time has already gone. We would need to persuade them and see if they are willing. The process is still between us and BoB; it will then go through the usual channels, which include recommendations to the Minister who will go to Cabinet for its consideration.'

Nyamadzabo explained that discussions with the central bank were focussed on issues such as the quantum of the bond programme, its composition (bonds and Treasury Bills) and the sum of external borrowings set against accumulating savings. 'This will help us see the gap that we have to meet,' he said. 'That's where we are now.'

He confirmed that an exercise on project prioritisation was presently underway, adding that recurrent and development budget spending was restrained thus far this year. 'We have spent slightly less than what we had targeted in the development budget and this is something that has happened in the past,' he added. 'Spending is higher in the recurrent budget, which is, once again, expected. However, our overall spending levels are greater than what was the case in previous years.'

Nyamadzabo stressed that though the bond issuance programme may be delayed, 'it will still be necessary' as government finances were in a compromised state. He revealed that funds from the March P1.9 billion bond and Treasury Bill float were 'more or less exhausted'.

Government's streamlining of spending and prioritisation of spending will please economists such as Keith Jefferis, who has previously argued that this would be preferable to raising taxes. 'The February budget had slightly increased spending, but not very much,' Jefferis said. 'It would be quite welcome if they have managed to cut back on spending and prioritised, as we have been calling for.

'However, they will still need the bond programme even if they are covering their expenses at the moment because that programme covers a three-year period. If it is delayed, it may be because they have not determined what their borrowing needs will be in the medium term.'