BoB keeps eye on Euro crisis

MBONGENI MGUNI
Staff Writer | Thursday June 3, 2010 00:00

 

Through BoB, Botswana has an estimated P84 billion in international investments, part of them Euro-denominated and in asset vehicles in the Euro zone.

Botswana international investments are held within the Pula Fund, a Sovereign Wealth Fund (SWF) comprising various financial and physical assets. According to the Bank's 2009 Annual Report, the majority of these investments are in long-term equity and debt securities.

By 2008, approximately P5.5 billion of these investments were currencies and deposits in Special Drawing Rights (SDR) currencies. These currencies include the Euro, the British Pound, the Japanese Yen and the US Dollar.

This week, the Euro was nearing its lowest point against the US Dollar in four years, weighed down by uncertainty around the Greek economic crisis and its potential to spread to neighbouring states such as Portugal and Spain.

Despite a record Û110 billion (P955 billion) bailout from the IMF and European Union states, the Greek crisis has forced the Euro zone to approve an additional P7 trillion safety net to stabilise the Euro. The safety net comprises loan guarantees to economies using the teetering Euro.

On Tuesday, BoB officials stressed that the country's international investments would not be left to deteriorate from the Euro and Euro zone economies' crisis. Deputy Director (Research), Dr Kealeboga Masalila, said the central bank was keeping abreast of all developments around its investments in the Euro zone.

'The Euro zone is one of the markets that we are invested in and we are watching it very carefully,' Masalila said.'As an investor, it is highly improbable that we will not have exposure to the Euro zone market, although we are not specifically invested in Greece. We will monitor the situation. We manage the country's investments by adopting positions from time to time.'

Other senior BoB officials explained that the central bank frequently reviewed its international investments against its targets and performance thresholds. 'Should our investment position decline beyond our targets and thresholds, we will move our assets accordingly,' said one official.

'However, it should be noted that we are not only invested in currencies. Therefore, as an example, if the Euro declined drastically, we could move our assets from currencies to bonds or other vehicles within the Euro zone.'

The Assistant Minister of Finance and Economic Planning, Charles Tibone, also expressed concern about the trends in the Euro zone last week. 'We are concerned,' Tibone was quoted as saying.

'If the Greek crisis persists, then that will affect consumption of our products. What happens to the UK and Europe could impact on diamond sales. Trade between ourselves and Europe is important.'

International media also quoted the World Bank's Chief Economist as saying the Greek and Euro crises could 'damage the global financial system and strangle worldwide economic growth'. Justin Yifu Lin was quoted as saying developing countries would be hardest-hit should the crisis spread throughout Europe.