Government, through the Bank of Botswana (BoB), will on Friday approach the market for P2.6 billion, in the first borrowings under the recently expanded domestic debt programme.
Parliament in September doubled government’s domestic debt ceiling to P30 billion, allowing fiscal authorities more elbowroom to tackle coronavirus (COVID-19) related shortfalls in public finances.
Finance Minister, Thapelo Matsheka is facing a P13.6 billion deficit in the current financial year, owing to lower revenues and higher spending necessitated by COVID-19 response measures.
The government, through the BoB, borrows quarterly from the local capital market through Treasury Bills and bonds, mainly to develop the local market’s capacity, but increasingly to fund gaps in the national budget.
According to documents circulating within the capital market, the central bank on Friday will offer two Treasury Bills worth P500 million each, in the first ever simultaneous float of such notes.
The two Treasury Bills offer 91-day and 182-day maturities, in contrast to the usual sole offer of a 182-day bill.
The market will also be offered three bonds ranging from P300 million to P900 million, with maturities ranging from 2025 to 2041. All three bonds are reopening of bonds that existed before the expansion of the domestic debt programme by Parliament.
“The October 30 auction will be the first to be conducted under the increased Government Bond Issuance Programme of P30 billion,” the BoB’s Communications and Information Services head, Seamogano Mosanako told BusinessWeek in a written response to questions.
She also revealed that the introduction of two Treasury Bills at a single auction was part of a new arrangement for the shorter term debt instruments.
“A new T-Bill programme is being introduced from October 30 following the increase in the ceiling of the bond issuance programme,” she said.
“The new T-Bill programme will offer two different maturities of the T-Bills, which is the three and six months T-Bills at monthly auctions. “As a result, the three-month and six-month Treasury Bills will be auctioned on a monthly basis (and) the three-month T-Bill will replace the current 91-day Bank of Botswana Certificate.” Traditionally, the central bank has offered a six-month (182-day) Treasury Bill on a quarterly basis together with the long maturity bonds. The monthly auctions are part of plans previously announced by the central bank to conduct more frequent auctions of government paper.
“Policy consultations ongoing between the Finance Ministry and the BoB are focussed on designing a transparent and more frequent issuance of a sufficient quantum of domestic government securities in a predictable arrangement that hopefully will attract a larger pool of participants and support deficit financing with lower risks,” said governor Moses Pelaelo in February.
“This would be premised on the adoption of a sound governance architecture around public debt management underpinned by the country’s well established track record of prudent fiscal policy and strong institutions.”
Government’s domestic borrowings remain lower than the 20% of GDP limit fiscal rule and even with the P30 billion limit, this would equate to about 16%. By comparison, domestic bond issuance in South Africa, Namibia and Mauritius as a percentage of GDP is more than 55% on average, with private sector investors such as pension funds being given plenty of vehicles to pump money into via strong local borrowing by those governments.