Thursday, December 2, 2021

Botswana gets a P2.6 billion loan from World Bank

The Botswana government has received a lifeline from the World Bank to rev the sputtering economic engines through reforms which require increased government expenditure at a time the country’s fiscal position has been eroded.

The World Bank on Friday approved a $250 million (P2.6 billion) credit under the Programmatic Economic Resilience and Green Recovery Development Policy Loan (DPL). The funds will be used to accelerate key economic reforms and support the implementation of Botswana’s Economic Recovery and Transformation Plan (ERTP), designed to strengthen COVID-19 pandemic relief while bolstering resilience to future shocks. 

The New York headquartered bank revealed that the loan is the first-ever World Bank budget support operation for Botswana and the first of two planned operations.

“The COVID-19 pandemic has placed a great burden on the country’s economy, its people, and firms. With this operation, the World Bank will support the government’s reforms to ensure social spending reaches the poorest and assists Batswana who are most affected by the Covid-19,” said World Bank Country Director for Eswatini, Botswana, Lesotho, Namibia and South Africa, Marie Francoise Marie-Nelly. 

“This operation will also support reforms to attract private sector investments, contribute to diversification of exports, and increase job opportunities towards a green economy”.

According to the Bretton Woods institution, the operation provides both financial and technical support for government reforms to implement a Single Social Registry and to improve targeting of social spending on the most vulnerable while strengthening systems for future shocks. 

“It will also help strengthen the business environment for increased SME-led job creation and economic diversification through improved access to finance for individuals and small and micro enterprises (SMEs).”

Furthermore, the program will nudge Botswana towards green technologies by supporting reforms to increase production of renewable energy by independent power producers, promoting and regulating rooftop solar energy generation, and embedding climate change considerations in environmental assessments.

DPLs are used by the World Bank to support a country’s policy and institutional reform agenda to help accelerate inclusive growth and poverty reduction. The COVID-19 pandemic led to a real gross domestic product (GDP) contraction of 7.9 percent in Botswana in 2020 – the largest in the country’s history. 

This has also led to a depletion of existing fiscal buffers, reducing the government’s capacity and resources needed to accelerate the implementation of structural reforms.

According to the latest Bank of Botswana’s statement of financial position for March, total foreign assets stood at P53 billion, lower than the P55 billion registered in February. On a 12-month period, foreign exchange reserves have declined by 14.5 percent.

The funds that can be withdrawn and used by the government from the foreign reserves are held through the Government Investment Account (GIA), which last year record lows. Prior to the financial crisis of 2008/9, the government investment account had P30.5 billion in December 2008 but this has since dissipated, with March 2021’s GIA balance at P4.4 billion. 

Last year, the fund had its biggest plunge, ending the year with P2.8 billion, lower than the P20 billion it began the year with, indicating that P17.2 billion or 86 percent of the funds was used in 2020. 

The depletion was attributed to frequent withdrawals by the government to plug the budget deficits caused by high spending. Between 2017 and 2019, budget shortfalls have added to P21.8 billion, while projections for 2020/2021 financial year points to an all-time high budget deficit of P21 billion.

Meanwhile, Botswana’s debt has increased since last year. The diamond dependent economy started 2020 with a P30.4 billion debt before ending the year with P38.6 billion in loans – with the increase largely due to domestic borrowing, jumping from P15 billion to P22 billion. 

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