Government has raised about P3 billion from the bond market this year, funds that are expected to be used to help plug the budget deficit.
A budget deficit of P6.5 billion is forecast for the current financial year up from P2.35 billion announced by Finance Minister, Kenneth Matambo in February.
With government having ruled out tax increases to finance the deficit, the shortfalls will likely be covered by a combination of borrowing on the domestic market as well as drawing down on the Pula Fund at the central bank.
Figures released by the Botswana Stock Exchange (BSE), where government bonds are listed, show that treasury has borrowed P2.99 billion so far in the calendar year 2017 through tapping into existing listed bonds as well as Treasury Bill offers.
At the first issuance of 2017 held in March, the government borrowed P392 million through bonds auctions while P700 million was raised through a Treasury Bill offer.
The next issuance was in June, where bond allotments amounted to P401 million on top of a P500 million Treasury Bill offer.
In September, government went back to the capital markets to borrow P1 billion comprising another P500 million Treasury Bill offer and an equal amount in bonds.
On the back of the government bond auctions and new issuances of the corporate bonds, the market capitalisation of listed bonds increased to P12.9 billion in the nine months to September 2017 compared to P11.6 billion in the same period in 2016.
At present there are 43 bonds listed on the BSE, five of which are government bonds.
Despite the government’s seemingly increased participation on the bond market this year, the BSE feels the number of government bonds are still limited and improved activity by treasury could boost liquidity as well as pricing of bond instrument on the market.
“The limited number of government bonds is a great concern with respect to maintaining a robust risk free curve and the viability of the existing three BSE bond indices.
“Three of the
These wide gaps in the yield curve negatively impact the pricing of assets such as corporate bonds that ordinarily reference risk free assets and this brings distortions in pricing and compromises the liquidity and the appetite for debt instruments. It is in the best interest of the capital market at large for government to maintain presence across various maturity profiles on a consistent basis,” said the BSE in a market update. Botswana has been running budget deficits in the last three financial years, which have been funded by a combination of drawing down on savings as well as issuance of bonds and Treasury Bills.But figures released by Bank of Botswana this week show that in 2016 the government ended up in the surplus due to higher than anticipated revenues from the central bank.
According to the latest Botswana Financial Statistics (BFS) report, the final estimates for the 2016/17 government budgets show a surplus of P1.1 billion, compared to a revised budget estimate of a deficit of P1.1 billion.
The report says that the surplus was mainly due to buoyant revenue and grants, which stood at 102.6% of the revised budget.
“This resulted from the significantly higher than expected payments from the Bank of Botswana which were 235% in excess of the revised budget. The gain in the Bank of Botswana payment was due to unanticipated improved performance of the government investment portfolio as well as the effects of currency movements on the portfolio,” reads the report. Additionally minerals revenues surpassed the revised budget estimates by 7.9% due to increased rough diamond demand and, hence improvements in sales, while Southern African Customs Union revenues increased by 2.2% over the revised budget.