Government reserves, which the Finance ministry traditionally dips into during times of crisis, were measured at P3.4 billion in December, a significant drop compared to P18.3 billion in December 2019, reflecting the pressure on local budget funds.
The reserves were P5.6 billion in November and were steadily declining throughout 2020 as the government tapped into them to support the budget after main revenues such as mining, collapsed due to the coronavirus (COVID-19) pandemic.
The latest Bank of Botswana (BoB) statements indicate that the reserves, known as the Government Investment Account (GIA), fell to about P5 billion in September then rose to P6.5 billion in October, before ending the year at P3.4 billion, an all-time low.
The GIA began the year at about P17 billion, but began sliding as the COVID-19 crisis forced more drawdowns by government to support the budget.
The reserves’ weakness comes after Finance and Economic Development minister, Thapelo Matsheka told Parliament recently that government would ease its drawdowns from the GIA as it had softened considerably.
The minister said the government would instead look at borrowing from the local market and ‘domestic resource mobilisation’ a term that includes tax increases and reduction of subsidies and exemptions.
Matsheka previously noted that prior to the 2008-2009 financial crisis, the GIA stood at about P30.5 billion while before the COVID-19 crisis, it was at about P18.3 billion.
Meanwhile, the BoB says work continues on ring-fencing part of the foreign reserves, to protect them for future generations. Last July, the central bank executives told Cabinet that the Pula Fund, which is part of the foreign reserves, should be managed in such a way that “future generations do not curse us for not managing them well”.
The BoB has said it is in the process of developing a formal policy submission to the government on ring-fencing or protecting the Pula Fund from frequent withdrawals. This week, the BoB’s head of communications and information services, Seamogano Mosanako said there were several factors to take into account in coming up with the policy submission.
“Work on the framework for ring-fencing part of the foreign exchange reserves is ongoing taking into account, inter alia, the adequacy of the foreign reserves for central bank objectives, for example, as is the case with the current level of foreign exchange reserves,” she said.
“(Other factors to take into account include) macroeconomic assessment and appropriate balance between the flexibility elements embedded in the current framework to deal with any contingencies and potential benefits of withdrawal rules associated with any prospective ring-fencing of the Pula Fund.
“Notwithstanding, as indicated in the 2021 Budget Speech, there is a general agreement on the urgent need to rebuild and stabilise the country’s buffers, including the external position.”