Botswana debt at over P49 billion
Botswana has obtained five loan facilities amounting to over P7 billion from various multilateral and bilateral development finance institutions over the last five years, despite having not obtained any loan from the International Monetary Fund (IMF).
As at February 2023, total outstanding debt for Botswana was P49.69 billion which is 20.07 percent of GDP. Of this amount, domestic debt including guaranteed debt stood at P27.78bn (11.22 percent of GDP) while external debt including publicly guaranteed debt was at P21.91 billion (8.85 percent of GDP).
Minister of Finance Peggy Serame told parliament when answering a question asked by Member of Parliament for Serowe South Leepetswe Lesedi during the ministers’ session that a total of P7 925 683 496, was contracted from various multilateral and bilateral development finance institutions.
Serame said the IMF financing is typically meant to help member countries to address their Balance of Payment problems, stabilise their economies and restore sustainable economic growth. Botswana has had no reason to access these facilities in the period under review.
She explained that these are two loans from the International Bank for Reconstruction and Development (IBRD), one loan from the African Development Bank (AfDB), one from the OPEC Fund for International Development, and a loan from Japan International Cooperation Agency (JICA).
Further, that a loan amounting to an estimated P1.91 billion-based on the latest rates of exchange for the Botswana Emergency Water Security and Efficiency Project was signed with the International Bank for Reconstruction and Development (IBRD) on the 17th May 2017.
She said to date, P691.85 million representing 36 percent, has been disbursed. Despite the initial slow offtake of the project, which was attributable to delays in environmental assessment and procurement processes, 'I can now report that the project is slowly gaining traction.'
According to Serame, two loans which were earmarked for Budget Support were contracted during the financial year 2021/22. One of them was from the International Bank for Reconstruction and Development (IBRD) amounting to P2.85 billion which was signed on the 4th October, 2021. The whole amount was disbursed by the IBRD and paid into the Government Remittance Account on the 28th October, 2021.
The other loan was from the African Development Bank (AfDB) amounting to P1.56bn and the loan agreement was signed on the 3rd February 2022. “The whole amount was disbursed by the AfDB and paid into the Government Remittance Account on the 10th March 2022”.
Serame explained that two more Budget Support facilities were contracted in the 2022/23 financial year. The OPEC Fund for International Development facility, amounting to an estimated P1.32bn was signed on the 27th January 2023, while the Japan International Cooperation Agency (JICA) facility which was signed on the 17th February 2023, amounted to P1.50bn.
She said at the time of responding to this question, these “two Budget Support loans were yet to be disbursed, however, it is envisaged that the OPEC loan disbursement process would be completed soon”.
The JICA loan is most likely to disburse in the first quarter of financial year 2023/2024. Therefore, the total amount disbursed in respect of Budget Support is P4 417 808 220.00, which is 56 percent of the total amount of loans contracted in the last five years.
Serame said that government has not borrowed directly from domestic financial institutions but rather issues Government securities (Government Bonds and Treasury bills) through Bank of Botswana on a monthly basis. The securities are issued in the primary market where primary dealers participate.
These primary dealers are ABSA Bank Botswana, Standard Chartered Bank Botswana, Stanbic Bank Botswana, Access Bank Botswana and First National Bank Botswana. As at December 2022, domestic debt outstanding stood at P26.04bn (11.22 percent of GDP), of which P5.24 billion was Treasury Bills and P20.80 billion in Government bonds.
Serame said with the exception of the loan from JICA which has a fixed interest rate of 0.01 percent per annum, the interest rate structure of the four other loans is based on benchmark floating reference rates for a six-month interest rate period, the London Interbank Offer Rate (LIBOR) and the Secured Overnight Financing Rate (SOFR), plus variable spreads and margins.
'The LIBOR is being discontinued, and all loans that had the LIBOR as the base rate will transition to the SOFR. All International Bank for Reconstruction and Development floating base rate loans have transitioned to the SOFR, whilst the African Development Bank loans transition shall take effect after 30th June 2023”.
The repayment period of these five loans range from 10 to 20 years.
Serame further said current debt levels are within the statutory limit as outlined in the Stocks, Bonds and Treasury Bills Act of 2005 which states that total public and publicly guaranteed debt shall not exceed 40 percent of annual Gross Domestic Product (GDP).
Further, that for the past five years, the foreign exchange reserves decreased from P71.4 bn -15 months of import cover of goods and services - at the end of December 2018 to P54.5 bn -8.8 months of import cover- at the end of 2022. In foreign currency terms, the foreign exchange reserves were USD 6.7 bn (2018), USD 6.2 bn (2019), USD 4.9 bn (2020), USD4.8 bn (2021) and USD 4.3 bn (2022).
She said the deterioration in the level of foreign exchange reserves, over the five-year period, is primarily due to unfavourable external sector performance, namely successive balance of payments deficits, as well as trade (and terms of trade) shocks and other adverse events caused by COVID-19 pandemic, volatile global financial markets, and the prolonged Russia-Ukraine war. To further explain, the balance of payments deficits partly results from Botswana’s demand for foreign currency exceeding the country’s foreign exchange earnings or receipts during this period.
Botswana’s foreign exchange reserves were accumulated, over the years, as a result of past balance of payments and government budget surpluses. Conversely, Mr. Speaker, the recent balance of payments and government budget deficits as well as poor performance of the global financial markets lead to a decrease in foreign exchange reserves. What this state of affairs means is that there is need to sustain efforts for expanding the country’s productive base and productivity, diversification of producers, products and services, and penetration of export markets in order to both reduce the import bill and increase capacity to earn foreign exchange.