Traditionally, the BPOPF participates in government’s domestic debt programme indirectly through the use of intermediaries such as asset managers and their commercial banks. The P55 billion debt programme, which features monthly auctions of government bonds and treasury bills, is open exclusively to primary dealers who are commercial banks.
“Due to persistent fiscal constraints, the government account is more or less overdrawn and revenue offices across the country are experiencing operational incapacitation and as we close the financial year, government faces a significant backlog of outstanding invoices that must be settled,” Minister of Finance Ndaba Gaolathe told Parliament on Monday in seeking approval for the loan.
According to the Finance ministry, given the shortfall in revenues that government has been facing, technocrats “were compelled” to explore alternative financing options to “urgently bridge the gap” and ensure continued delivery of essential public services.
“The ministry approached the BPOPF for a possible loan to support financing of the budget,” he said. “Following constructive negotiations, the BPOPF agreed to extend a loan which was approved by the board of trustees on March 13.”
The loan has a seven-year tenure, carries an interest rate of 11% per annum, is inclusive of a two-year grace period and also has a two-year moratorium on interest repayments.
Gaolathe said the grace period was a reprieve for government on its debt servicing which would allow it to build on improving its liquidity from the current cash crunch.
Analysts told BusinessWeek the deal was also a win for the pension fund, with the 11% interest rate being more than five percentage points above the local banking sector’s prime lending rate. The prime lending rate of 6.01 percent represents the interest rate local commercial banks charge their best clients.
For the BPOPF, the loan is one of the “big ticket” items the pension fund has been looking for lately to boost returns to pensioners. BusinessWeek understands the deal with government was based on appetite expressed by the BPOPF, whose investment thresholds are limited by the Pension Fund Rules.
The BPOPF, like other local pension funds, is required to gradually move to a position where 50 of its assets are invested domestically. Under the updated Non-Bank Financial Institutions Regulatory Authority (NBFIRA) Pension Fund Rules, local pension funds are required to gradually increase the proportion of their domestic assets to 50% in the years to December 2027. The target for December 2024 was 41% and will move to 44% by December 2025.
Meanwhile, Gaolathe also successfully sought parliamentary approval for $118 million (P1.6 billion) in funding from the International Bank for Reconstruction and Development (IBRD) as well as the Green Climate Fund (GCF). The IBRD is the World Bank Group ‘s lending arm, whilst the GCF is the world’s largest climate fund established under the United Nations climate agreements.
Gaolathe said the funding would also include a $4 million grant from the GCF. The IBRD loan is for $88 million, with a variable interest rate of 5.82 percent, a four-year grace period on commitment fees and a 30-year repayment period with a nine-year grace period.
The GCF loan carries a zero percent charge on the withdrawn balance, a 0.25 percent per annum service charge on the withdrawn loan balance, a 20-year repayment period and no commitment charges.
The IBRD and GCF loans and grants are to enable various renewal energy projects and grid integration around the country. The loans will also improve electricity service in selected rural areas, Gaolathe said.
