Business

Andrew Maramwidze | Friday August 18, 2023 10:12

Govt considers domestic borrowing to finance fiscal deficit

Peggy Serame notes that the government aims to boost the local capital market by increasing domestic borrowing, while being mindful of the related costs
 
Peggy Serame notes that the government aims to boost the local capital market by increasing domestic borrowing, while being mindful of the related costs

With limited options to finance fiscal deficits on the backdrop of declining Investment Account (GIA) and global economic challenges, government has set its eyes on the local equity market. The anticipated fiscal deficit for the year 2023/2024 is projected at P7.59 billion or 3.06 percent of gross domestic product (GDP).

Though plans to fund part of the deficit with a loan from African Development Bank (AfDB) under the Botswana Economic Recovery Support Program -Phase II loan are almost approved, the finance minister says local equity market should also fund deficit gaps. “Going forward, government will be more inclined to domestic borrowing as part of the efforts by government to develop, grow, and deepen the domestic capital market, while being cognisant of the associated borrowing costs,” said Finance Minister, Peggy Serame in parliament recently.

Botswana Stock Exchange’s (BSE) bond market performance for the period from January to July indicates the value of bonds traded was P1.2 billion, an increase of 23 percent from P1.0 billion traded during the same period in 2022. In addition, seven government bonds, 37 corporate bonds and two commercial Papers are listed on the BSE with a total market capitalisation of approximately P24.7 billion.

Though government bonds remain few, Serame said the country has employed an expansionary fiscal policy as evidenced by an increase of 27.88 percent in the development budget during the financial year 2023/2024. “This notable increase strives to fill infrastructure gaps and implement projects that are necessary to unlock constraints to economic growth,” said Serame, highlighting that the deficit will be financed through a combination of domestic borrowing - government bonds and treasury bills and external borrowing from the multilateral development banks.

She further highlighted that at the end of June 2023, total public debt to GDP stood at 18.60 percent, comprising of nine percent in domestic debt and 9.60 percent in external debt. “The current debt levels therefore, are not only within the statutory limit of 40 percent of GDP as set out in the Stocks, Bonds and Treasury Bills Act, 2005, CAP 56:07, but are within what is regarded as low, according to international standards,” said Serame.