Finance and Economic Development minister, Thapelo Matsheka has officially requested Parliament to lift the domestic borrowing limit from P15 billion to P30 billion, a move that will allow government to patch some of the holes in revenues caused by COVID-19.
Government is facing a P13.6 billion budget shortfall for the current financial year due largely to a fall in mineral revenues. Matsheka has said much of the funding for this will come through domestic borrowing as opposed to drawing down on reserves or foreign borrowings.
Government’s local borrowings, through Treasury Bills and bonds, are done under the domestic issuance programme, which dates back to 2008. From a ceiling of P5 billion in the original programme, Parliament approved the increase to P15 billion in 2011, but this limit was reached in the June 2020 auction of bonds.
On Monday, Matsheka presented the request to legislators, saying the reserves held under the Government Investment Account (GIA) were fragile and needed to be rebuilt and preserved for use as future buffers. The GIA, managed as part of the sovereign wealth fund, represents government’s portion of the foreign reserves.
“It is important to point out that unlike in previous economic crises, such as that of 2008-2009, the 2020 COVID-19 induced economic crisis comes at a time when the country’s net financial position is not strong,” he said.
“In particular, the balance in the GIA has decreased over the past years.
“It is therefore not advisable to draw down on the GIA as the main source of financing for the anticipated deficits, as has been done in the past.”
He added: “Prior to the financial crisis of 2008-2009, the GIA amounted to P30.5 billion in December 2008, which is equivalent to 41% of GDP.
“As at December 2019, however, it stood at P18.3 billion, only nine percent of GDP.
“It would, therefore, be advisable to avoid excessive drawdown from the GIA in order to preserve it as a financial buffer.”
As at June 30, the GIA stood at P13.8 billion, compared to P22.2 billion at the
The issue of government dipping into the reserves has become topical, with the Bank of Botswana (BoB), which manages the funds, noting that greater ring-fencing was required to ensure the funds are preserved for posterity.
Emmanuel Botlhale, professor in Public Administration at the University of Botswana, said the central bank needed greater independence in order to effectively manage the reserves. “We have to firewall the BoB, especially when it manages such as important kitty,” Botlhale told a virtual meeting on ‘Saving Mineral Wealth for Posterity’ last week.
“We need to look at setting higher performance benchmarks for the fund managers of these funds and we also need independent reporting that speaks directly to the fund and is not subsumed into the budget account.”
In July, the BoB said it had briefed Cabinet on the need 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,” the Bank’s acting director of financial markets, Lesego Moseki said.
“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.
Meanwhile, on Monday, Matsheka said at P30 billion, the domestic issuance programme would be about 16% of GDP, which is still below government’s fiscal rule limiting local debt to 20% of GDP.