When Botswana’s Minister of Finance and Development Planning, Baledzi Gaolathe, signed a memorandum of understanding (MoU) on macroeconomic convergence in 2002 alongside his SADC colleagues, he and all his successors would subsequently ensure that the country delivered on its undertaking to keep public sector debt less than 60.0 percent of GDP.
The result was that in the latest figures from the African Development Bank, “eSwatini had the lowest external debt burden, followed by Botswana.”The SADC MoU was based on the premise that in order to achieve and maintain macroeconomic stability, balancing intra-regional development, and elimination of obstacles to the free movement of factors of production and commodities, SADC countries needed to converge on stability-oriented economic policies.
A total of six macroeconomic convergence indicators were agreed: inflation (3.0 percent-7.0 percent); budget balance (deficit of less than 3.0 percent of GDP); public sector debt (less than 60.0 percent of GDP); GDP growth (7.0 percent minimum); current account balance (deficit of less than 9 percent of GDP); and foreign reserves (six months of imports minimum).Botswana’s external borrowing happens under the auspices of the Stock, Bonds and Treasury Bills Act, which prescribes that “the total foreign debt and government guaranteed debt shall not exceed 20 per cent of the annual gross domestic product.”
Even during the rough patch of the 2009 recession, the country never exceeded this statutory debt limit – which put it in a good position in terms of meeting its obligations of SADC’s 2012 MoU. However, that may be about to change because as the AfDB states, there are high probabilities that some governments in the SADC region may end up accumulating more debt (domestic and external) in order to address the adverse impacts of the COVID-19 pandemic.“For some countries, debt payment is likely to face challenges as the regional countries channel more resources towards health care responses, social protection to the most vulnerable, and other stimulus packages to prevent and mitigate the adverse impacts of the COVID-19 pandemic.
This may lead to debt defaults and may further result in a worsening debt crisis post-COVID-19 pandemic.”The continental bank recommends improving revenue mobilization in order to reduce reliance on debt financing as well as strengthening tax administration systems “to plug the loopholes hemorrhaging the resources that are dearly needed for socioeconomic transformation.”In the last session of parliament, which ended last month, the Minister of Finance and Economic Development, Dr. Thapelo Matsheka, requested Parliament to lift the domestic borrowing limit from P15 billion to P30 billion in order to mitigate the economic effects of COVID-19.
While some MPs were apprehensive about rising debt levels, the former Gaborone Bonnington South MP and Alliance for Progressives president, Ndaba Gaolathe, has in the past faulted the Botswana government for under-utilising its massive borrowing power.“Botswana has substantial capital resources, including pension resources which are the size of our entire formal banking sector. The government also has significant borrowing power which, to date, has not been put to bear notwithstanding that this may be viewed positively as a sign of prudence,” he said.