Sunday, May 9, 2021

Botswana’s 2010 loan helped raise African bank profile

Four years after Botswana borrowed money from the African Development Bank (AfDB), the institution is still thrilled to bits that they borrowed from it.

When the global financial crisis hit, diamond prices plummeted and Botswana’s finances were badly affected. In 2010, the government did, for the first time in 17 years, borrow a large sum of P10.5 billion for budgetary support.

The loan covered the larger part of the P13.4 billion deficit the government had 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 bank has just concluded a new country strategy paper for Botswana which covers 2015 to 2019 and in reflecting on lessons learnt from the previous paper states: “The relationship with Botswana was particularly boosted by the provision of the general budget loan in 2010 that helped to raise the Bank’s profile as a key development partner in the country. More generally, the loan showed that the Bank can be relied upon in terms of its responsiveness to address emerging needs.”

Although it has a substantial shareholding in the AfDB, Botswana has never been too keen on the bank’s loans. 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.

Cooperation between the bank and Botswana dates back to 1972. The bank has 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.

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