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BoB wants P52bn Pula Fund protected from 'frequent withdrawals'

MBONGENI MGUNI
Looking forward: Pelaelo and his executives say future generations must also benefit from the Pula Fund
The Bank of Botswana (BoB) is pushing for the development of policies to “ringfence” the Pula Fund and protect its billions from “consistent” withdrawals, BusinessWeek can reveal.

The Pula Fund houses the country’s savings comprising decades of budget surpluses and diamond revenues.

Set up as a sovereign wealth fund managed by the BoB and global asset managers, the Pula Fund is designed to act as a fiscal buffer and nest egg for future generations who will live in an era without strong diamond revenues.

Government often dips into the Pula Fund to fund various needs such as the Economic Stimulus Plan and budget shortfalls, while frequent withdrawals are also made to support the country’s import bill. The Pula Fund is part of the foreign reserves, representing long term assets, while other components cater for short and medium term needs.

However, the erosion of the Pula Fund and overall foreign exchange reserves has picked up pace in recent years due to declining exports and against rising imports, while widening budget deficits have forced government to dig deeper into the reserves for funding.

BoB figures show that while the foreign reserves were pegged at P75.3 billion in May last year, they had fallen to P66 billion by May this year, the latest period available for the data.

On Tuesday, the central bank’s head of research and financial stability, Tshokologo Kganetsano painted a dire picture of the reserves, saying their rapid depletion was underpinned by the lack of diversity in the country’s revenues sources, as well as the impact of the COVID-19 pandemic.

“We are receiving about P3.5 billion from the Southern African Customs Union every three months, but our monthly import bill is about P5.5 billion.

“There have been very little mineral and other exports in 2020 due to the pandemic and just from these numbers, it’s clear there is a very urgent need for diversified revenue sources.”

The last available merchandise figures showed that the country exports crashed from P4.5 billion in March, to just P143 million in April. April was the first month of

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the 67-day COVID-19 lockdown and while the restrictions have been eased, little exports are reportedly being done due to travel bans and other limits in target markets.

The central bank’s acting director of financial markets, Lesego Moseki told BusinessWeek that Cabinet had been briefed on the need for policies to ringfence the reserves.

“Given the rate at which our reserves are going down and given that one of the objectives of reserves management is to save them for future generations, at the briefing for Cabinet, we said we should manage them in such a way that our future generations do not curse us for not managing them well,” he said in response to questions at a briefing on Tuesday.

“We must look at a framework that will allow us to ringfence some of those reserves to protect them from consistent withdrawals.

“We will need to design some framework around that.”

Moseki said part of the framework could include boosting government’s domestic debt programme, so that government is able to tap into those resources rather than the reserves. Parliament is due to soon consider the doubling of the domestic debt programme to P30 billion.

“That could allow government to pull from the domestic market and we would not need such extensive withdrawals from the Pula Fund,” Moseki said.

Deputy governor, Kealeboga Masalila said besides preserving the Pula Fund for future generations, ringfencing was necessary for value to be extracted from the sovereign wealth fund.

“It’s important to remain with sufficient value to be viable for future investment,” he told BusinessWeek.

“You need a quantum of reserves that can generate reasonable future returns for reinvestment or for current use.”

Governor Moses Pelaelo said prudent management of any country’s reserves engendered confidence in its currency. He said it was critical to look at ringfencing of the Pula Fund as part of the mandate of managing it for intergenerational purposes.



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