Sunday, May 29, 2022

Botswana not too keen on AfDB loans

Out of a total of 22 933 contracts awarded by the African Development Bank for operations it has funded over the past 14 years, Botswana’s total accounts for only 0.048 percent. However, as a senior Ministry of Finance and Development Planning official explains, there are more important considerations in sourcing a loan than mere sentimentality about its source. According to the latter, what matters most in this regard are interest rates and repayment terms.

“There is likelihood that the terms of other loans are far better and flexible than AfDB loans. Again, a country can borrow because it needs a certain currency to make certain payments. For example, a country can borrow in Japanese yen to purchase certain things in Japan as opposed to borrowing in dollars at the AfDB and then converting to Japanese yen,” says the official, adding that it is in Botswana’s interest to build a track record as a good borrower and repayer because that enables the country to borrow cheap.

Although it has a substantial shareholding in the AfDB, Botswana has never been too keen on the bank’s loans. It was only in 2009 when the global recession began to bite and diamond prices plummeted that, for the first time in 17 years, the borrowed a large sum (P10.5 billion) for budgetary support. The loan covered the larger part of the P13.4 billion deficit the government incurred in its 2009/10 national budget with the remainder of the deficit being covered by a P2.2 billion loan that the country got from the World Bank through the AfDB’s Development Policy Lending window. The latter is a fast-disbursing facility intended to assist countries in economic crisis. For the AfDB, this was a development so welcome that its president, Donald Kaberuka, came to Gaborone for the signing ceremony.

The curious thing is that other strong African economies like Nigeria, Tunisia, Ghana and Equatorial Guinea are big borrowers at the AfDB. Ghana has used some of its loans from the bank to develop its agricultural sector to a standard so high that it is now held up as one of the best continental models.

Botswana holds a 1.1 percent shareholding in the bank’s African Development Fund (ADF). The largest ADF shareholder is the United States with approximately 6.5 percent of the total voting shares, followed by Japan with approximately 5.4 percent. The voting power on the Board is split according to the size of each member’s share, currently 60-40 percent between African countries and non-regional member countries. All member countries of the AfDB are represented on the AfDB Board of Executive Directors.

Cooperation between the bank and Botswana dates back to 1972. The bank had financed 50 operations (41 loan projects, seven institutional support operations, and two studies) valued at approximately US $2.1 billion. Bank-funded projects are primarily in the areas of infrastructure (power, transport, water and sanitation, communication), agriculture, finance and multi-sector.

Most AfDB resources and projects are intended for its regional member countries. The establishment of the bank’s new credit policy in 1995 has resulted in a rationalisation of loan conditions. Countries are classified under three categories on the basis of country-creditworthiness and GDP-related considerations. The first category comprises countries having a per capita GDP of less than US$540 and are only eligible for concessional resources from the African Development Fund. The second comprises countries with a GDP per capita of between US$540 and US$1050 and are allowed access to a blend of AfDB and ADF resources. The third category is made up of countries with access to only AfDB loans. Such countries have a GDP per capita higher than US$1050.


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