The World Bank says technical discussions with the Ministry of Finance and Economic Development are ongoing towards a loan to help government finance the P14.5 billion Economic Recovery and Transformation Plan (ERTP).
The ERTP is government’s plan to lift the economy out of the novel coronavirus-induced (COVID-19) depression and set it on a transformation agenda through fast-tracked projects and policies running until March 2023, which is the end of (National Development Plan) NDP11.
Finance Minister, Thapelo Matsheka has said the P14.5 billion required to finance the ERTP will come from domestic borrowing, domestic resource mobilisation – which includes higher taxes and fewer subsidies – as well as external support.
On Tuesday, World Bank resident representative for Botswana and Special Envoy to SADC, Guido Rurangwa told BusinessWeek the institution and the ministry were ironing out the finer points of a possible loan to support the ERTP.
“Technical discussions on the details of the budget support are currently ongoing,” he said.
“Once technical discussions are completed, the World Bank support will be a loan to support the implementation of Botswana’s ERTP.”
Rurangwa said the World Bank also stood ready to support Botswana in acquiring COVID-19 vaccines once they become available and “the government confirms its interest in this type of support”.
On Tuesday, Reuters reported that Botswana had made an upfront payment to COVAX this week and would have the option to secure roughly 940,800 vaccine doses under a two-dose regimen.
COVAX is a World Health Organisation-led global COVID-19 access initiative, which aims to accelerate the development and manufacture of vaccines, and to guarantee fair and equitable access for every country in the world.
Rurangwa said the amount of financial support available to Botswana would depend on a ‘few parameters’.
“With the World Bank, the level of the amount available for an upper middle-income country such as Botswana depends on a few parameters, but is determined primarily by the country’s per capita income and its creditworthiness.
“The specific amount available for a country is shared with the government, and we make efforts to accommodate the country’s needs for financing,” he said.
The Finance Ministry’s secretary for development and budget, Grace Muzila, told a televised
Government has traditionally been wary of external borrowing, preferring to initially dip into its reserves, or raise capital domestically. Much of the fear stems from the ‘original sin’ a term coined by economists to roughly describe a situation where countries find themselves stuck with high foreign debt obligations.
However, Matsheka recently warned that government could not count on its reserves to help tackle the budget gaps caused by COVID-19. In a statement in which he successfully sought the doubling of the domestic debt programme to P30 billion recently, Matsheka said the reserves, held under the Government Investment Account (GIA), were fragile and needed to be rebuilt and preserved for use as future buffers.
“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 the GDP.
“As at December 2019, however, it stood at P18.3 billion, only nine percent of the GDP.
“It would, therefore, be advisable to avoid excessive drawdown from the GIA in order to preserve it as a financial buffer.”
The GIA stood at about P11 billion in August, down from P13.7 billion in July. In August 2019, the GIA stood at about P19.5 billion.