By law, BoB invests part of Botswana's foreign exchange reserves in long-term offshore equities, currencies and other vehicles. Last year, the global recession eroded Botswana's international investments, driving the P4.1 billion loss recorded by the central bank. The crisis led to underperformance of entities within which BoB was invested, lowering the value of its investments. In addition, the recession resulted in the appreciation of the pula against all Special Drawing Rights (SDR) currencies except the rand. Botswana's international investments are denominated in SDR currencies. While the investments are long-term, the appreciation potentially means less pula earnings for dividends and interests on investments, which are denominated in foreign currency.
A P5.2-billion currency loss due to the appreciation of the pula plus a P1.6-billion interest expense on the Bank of Botswana Certificates (BoBCs) were the chief drivers of the central bank's loss. According to BoB's 2009 Annual Report released yesterday, currency losses in international investments were behind the central bank's poor results for last year. BoB's exchange rate competitiveness index depreciated by 1.4 percent in 2009 against an appreciation of 4.5 percent in 2008. The competitiveness index reflects the Real Effective Exchange Rate (REER) or the weighted average of the pula relative to the SDR.
