Tuesday, December 7, 2021

Bonds not on offer as Gov’t licks wounds

The Botswana finance ministry last month opted not to offer bonds following their dismal performance, and instead settled for short term debts that will require the government to be liquid to be able to repay in a short period of time.

In the July treasury and bond auctions, undertaken by Bank of Botswana monthly, the government raised funds from investors through treasury bills (TB) only. The short-term debt instruments mature within a year unlike bonds which are debt instruments that traditionally have maturity date of over a year.

The government was able to raise P905 million in July, using the P305 million 12-month TB and the 6-month and 3-month treasury bills that each earned P300 million.

The lack of bonds in the past auction mirrors disappointment from Botswana’s ministry of Finance and Economic Development, which has expressed disapproval of high interest rates demanded by investors in exchange for borrowing government money over a longer period, citing risks as the country finds itself in the worst fiscal position.

In early July this year, the ministry’s top official Dr. Wilfred Mandlebe, who serves as the permanent secretary, said the country had planned to finance its expenditure through domestic borrowing using bonds but the response from investors has been lukewarm and expensive.

Last year legislators at parliament approved request by the Finance ministry to increase the government bond issuance programme from P15 billion to P30 billion at the August 2020 sitting.

The expanded bond programme was intended for two objectives; to primarily develop the capital market while acting as an alternative source of government financing, given the emergence of structural budget deficits, which totalled P21 billion since 2017.

Since the government through the central bank increased the number of government bond auctions, making them monthly, the government has failed to raise the amount of money it required at the time. In May, the central bank sought to garner P1.93 billion, but ended up raising P1 billion, with long term bonds shunned for the short-term treasury bonds that had maturity of less than six months.

The following month, in June, the government had to settle for less once again, walking away with P1.3 billion debt instead of their preferred P1.8 billion.

Dr. Mandlebe disclosed that the ministry’s officials are working closely with Bank of Botswana to manage the rising high interest rates for government bonds, which are likely to increase the amount of statutory expenditure, which are costs prioritised by government, especially to meet obligations.

“We do not want a situation where interest rates get large and weighs heavily on how the government spends its money,” Dr. Mandlebe said.

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