Saturday, February 8, 2025

Botswana’s principal arrears in 2019 were smallest in SADC

It is yet unclear how Omnicron, the new not-made-in-Botswana Covid-19 variant will affect the national economy. Whatever happens, Botswana appears to have built up more than adequate borrowing power over the years to stave off what fiscal challenges may lay farther down the road.

Figures from the African Development Bank show that in 2019, Botswana’s principal arrears were extremely small ($1,382). Alongside South Africa (with arrears of $4,149), Botswana was the only other SADC country with less than $300,000 in arrears. This state of affairs puts Botswana in a pretty good position when it comes to the workings of the global financial system.

Those who run this system have created a pecking order of sovereign debt repayments in which debts to multilateral government lenders such as the IMF and World Bank are senior to debts to all other government creditors – which, in turn, are senior to bonds and bank loans owed to private creditors. While countries like Angola and Zambia owe private creditors, all of Botswana’s accumulated arrears are owed to official creditors. If Botswana were to default on an IMF or World Bank loan, it would be cut off from crisis lending when it is most needed, risk losing its voting rights in these institutions as well as attract bad publicity – which is not good for its creditworthiness.

“Defaulting on bondholders is highly visible in the international press and will result in downgrades by the major credit rating agencies as well as potential legal disputes with specialized hedge funds. But a sovereign default on commercial bank loans or bilateral official loans may be less consequential as these defaults often occur ‘silently’, without much media coverage, and may trigger less collateral damage,” says the Bank adding that most governments know that the consequences of default depend on who the defaulted creditors are and what bargaining power each creditor group has. “This partly explains the move by some African countries from multilateral and Paris Club debt to bilateral non–Paris club debt, mostly from China.”

Unlike most countries in the region, Botswana mostly borrowed a lot from the Paris Club, an informal group of creditor nations that meets each month in the French capital, following the outbreak of Covid-19. The use of debt from different creditors means that the borrowed funds are denominated in different currencies, though a large portion is in U.S. dollars. Botswana’s external debt is denominated in at least seven currencies. The Bank says that in 2019, a large share of accumulated arrears was on debts obtained from non–Paris Club members.

Botswana reserves as a percentage of external debt are above 100 percent. AfDB says that “a high ratio suggests that a country has the capacity to liquidate its external debt without difficulties and is thus a promising sign of debt sustainability.” Botswana’s use of domestic debt has been rising (from 53 percent in 2012 to a projected 70 percent in 2021) and is seen as a reflection of the deepening of its bond market. This situation enables the country to mobilize domestic resources and tap into idle domestic savings.

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