The Bank of Botswana (BoB) has lowered the minimum capital adequacy requirements for local banks and eased other limits, as more funds are freed into the economy to help the fight against the coronavirus.
At its next Monetary Policy Committee on April 30, 2020 the central bank is also expected to significantly lower interest rates to ease access to capital for the local economy.
This week, details of government’s response to the economic impact of the coronavirus grew clearer. The response is based on government directly putting more than P2 billion into the economy, as well as unleashing a range of policy measures, including tweaks to fiscal and monetary policy.
Late Wednesday, the central bank revealed that under monetary policy, the Capital Adequacy Ratio (CAR) for local banks had been reduced from 15% to 12.5%. The move means less cumbersome adequacy requirements for banks as they support credit requirements in an economy suffering from the impact of the pandemic.
“(This will) enable banks to satisfy capital requirements and address liquidity challenges as they continue to support economic activity under conditions of possible increase in credit defaults and need for additional lending,” the central bank said, in a statement.
In addition, the BoB has removed a six percentage point charge on the cost banks pay to access overnight funding from the central bank’s credit facility. The funding will be provided at the current bank rate of 4.75 percent without the additional charge.
The cost of money will further be cheapened later this month, as Finance Minister, Thapelo Matsheka, says the central bank will review the benchmark bank rate to boost uptake of credit by businesses.
“The BoB will review the bank rate and also look at the minimum reserve ratio to push enough money into circulation,” Matsheka told a briefing on Wednesday.
“This will help those who can access credit, to access it.”
Government has also established a loan guarantee scheme in which it will underwrite 80% of the credit uptake of qualifying coronavirus-hit businesses. Participating commercial banks will cover the other 20%.
“This is a scheme between government, the private sector and banks,” Matsheka explained.
“We have set aside P1 billion to
“The requirement is that the businesses must be tax compliant and the cover will be for 24 months with a maximum loan of P25 million per borrower.”
Government is also ceding tax concessions worth P1 billion to affected businesses, while a waiver of the training levy payments will cost the state another P150 million.
The finance minister said under the COVID-19 Relief Fund, government’s major priority was a citizen wage subsidy to companies affected by the pandemic. The subsidy will cover 50% of basic salary ranging from P1,000 to P2,500 for up to three months, Matsheka said.
Investment, Trade and Industry minister, Peggy Serame said the various policy interventions and funding provided under the coronavirus response plan, would be followed by a stimulus package being prepared by ministries.
“These measures are for containment of the impact,” she said.
“There should be a stimulus package that will be done after six months, but for now we look at the impact.”
Government is appealing to private sector players and other organisations to donate to the Relief Fund either in cash or in kind.
Meanwhile, the central bank says the pandemic will hit economic growth hard.
“As an open economy that is integrated with regional and global economies, Botswana will be affected through several channels, amongst others, probable local infections, weaker global demand affecting exports such as diamonds and tourism, disruption to global supply chains affecting local production and project execution and travel and social gathering restrictions affecting tourism and hospitality sectors, as well as conferencing, sports and entertainment activities,” the bank stated.
The bank added: “Moreover, weak performance of global financial markets will impact on the foreign exchange reserves.
“Overall, GDP growth in 2020 is expected to be much lower than the earlier projection of 4.4 percent”.
Last week, analysts at leading consultancy, Econsult, projected that the economy would contract by four percent this year due to the coronavirus’ impact.