Sunday, June 23, 2024

AFDB leads Botswana’s multilateral creditors

The African Development Bank (AFDB) has come out as Botswana’s major international creditor, a recent report on the state of Botswana’s economic and social development has shown. The African Economic Outlook (AEO) states that the bulk of Botswana’s external debt is from multilateral institutions which accounted for 94.8 percent of the debt in 2012/13, with the African Development Bank being the major creditor accounting for 80 percent of the total. AFDB has funded projects such Morupule B amongst others.

Conducted by three international partners, the African Development Bank (AFDB), the OECD Development Centre and the United Nations Development Programme, the research on Botswana’s public debt shows that the composition of the debt has been balanced between external and internal sources until 2009/10 when external debt reached 70 percent. The rise was attributed to increased borrowing to address the shocks arising from the 2008 global financial crisis. Notably, while public external debt rose sharply from 2.7 percent of GDP in 2008/09 to around 10.7 percent in 2009/10, it was sustainable and remained around this level until 2012/13 when it rose to 12.6 percent.

Projections of the government and government guaranteed debt by the Bank of Botswana, for the 2013/14 financial year, have shown that the debt has reached over P30 billion. This reflects an upward trend of 4.8 percent given the 2012/13 outstanding amount of which P23.4 billion is said to be accounted for directly by government’s own debt. A breakdown of the government debt shows that its external obligation stands at P22.3 billion while internal debts are at P8.6 billion, including P7.6 billion government securities with the balance consisting of guarantees. Amongst the guarantees made by government is a debt deal in which the Okavango Diamond Company (ODC) secured a loan from Standard Chartered Bank Botswana.

The close to P1 billion debt deal was earlier this year endorsed by parliament, even though the house admitted that it did not know the debt parameters. At the same time, a 2013 report titled “value for money” prepared by the Parliamentary Public Accounts Committee (PAC) and released earlier this year, indicates that despite an increase in government borrowing and a drawing down of government’s savings, government does not have in place a strategy to provide strategic direction and focus in the management of debt.

The report suggested that there is likelihood of breaching limits of both internal and external debt ratio against the Gross Domestic Product (GDP) by government, following revelations that the custodian of public funds, the ministry of finance and development planning, continues to operate without a debt management strategy.

The PAC says it has noted that there are articulated goals and objectives against which performance in the management of debt could be measured. Information passed on to Sunday Standard indicates that government through the ministry of finance and development planning sought technical assistance regarding the debt management strategy from the World Bank. It has however emerged that the World Bank advised government that Botswana needs to develop a suitable Medium Term Debt Management Strategy (MTDMS). The bank also provided Botswana with a report in which it suggested six strategy options to choose from, which the Accounting Officer is said to have shelved.

“It was somewhat of a disappointment for the committee to note that for the last three years since the Bank issued its report, the Accounting Officer had not acted on the Bank’s recommendations. He stated that he was going to start working on the strategy in September 2013 and would have it in place by March 2014,”read part of the report compiled by the Nehemiah Modubule led committee.

Botswana’s terms of borrowing are guided by the Stock, Bonds and Treasury Bills Act, which limits each of internal and external Government debt and Government guarantees to 20 percent of GDP. By the end of the 2009/10 financial year, the internal ratio stood at 6.8 percent of GDP, while the external ratio stood at 12.5 percent of GDP. The latest annual report of the reserve bank however shows that at current levels, the government debt is equivalent to 24.3 percent of forecast Gross Domestic Product (GDP), which is within the statutory ceiling of 40 percent of GDP.


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