Monday, September 21, 2020

Cash strapped Botswana runs risk of debt crisis

Although Botswana has not yet exceeded the global debts benchmarks, the country risks running into a debt crisis if it continues borrowing at the current pace.

Since 2008, as the economy started running into continuous deficits, treasury officials have been running around the world to secure finances to keep the economy running.

“I do not think it is at the level of international standards,” economist Dr Keith Jefferis told Sunday Standard. “But we have to watch it (borrowing) carefully,” he advised.

However, at the moment, Botswana is not near risk of debt crisis because it is only that government’s borrowing is bigger than what the markets, the country and citizens are used to.

“Botswana is not at a risk of debt crisis at the moment. It is only that it is bigger than what we are used to in the past, but smaller by world standards,” added Jefferis.

The debt levels have put many economies, including developed ones of US, at crossroads because cutting debts will undermine efforts to economic recovery, while if countries continue borrowing, then there is a risk of debt crisis.

Already, countries in debt crisis include Greece, which over the past weeks has seen civil unrests although the EU has agreed bail-out packages.

Despite Botswana having a larger budget deficit than Greece, it is not over borrowed and at the moment, it does not have large debts.

Greece borrowing is nearly the size of its Gross Domestic Product (GDP) while using the rule of thumb; the benchmark should not be more than 60 percent of the GDP.

When Botswana went into crisis in 2008, it had net financial assets of P41 billion, but the deficits to be financed stood at P30 billion.

Analysts say if the deficit is financed by drawing from these assets, that figure could disappear in three years.

In Botswana, the law limits borrowing to 40 percent of the GDP, which makes the statutory lower than the international standards.

At the moment, many guess Botswana’s borrowing is between 20-30 percent to the GDP.

Charles Tibone, assistant minister at Finance ministry, told parliament last December that total indebtedness, including external, domestic debt and government guarantees, currently stands at over P20. 4 billion.

The minister assured the country that Botswana has not over borrowed.

Botswana government has borrowed US$1.5 billion as budget support loan from African Development Bank (AfDB), World Bank, and domestically to prevent the economy from going into abyss.

Botswana had not sort support for the past 17 years, it has been revealed.

The government has also guaranteed other loans like the one for Morupule B expansion project where Botswana Power Corporation (BPC) has borrowed US$ 125 million or P5 billion from Stanbic Bank.

“That loan is guaranteed by government and it becomes a liability to government,” said the former Bank of Botswana Deputy Governor.

“In the past, government was not a big borrower,” he added saying that this now represents a challenge to the Ministry of Finance and Development Planning headed by Kenneth Matambo.

Botswana government wants to balance its budget in the next three years and runs the risk of debt crisis and equally slow road to recovery if it does not spend.

This is the situation most economies like Botswana find themselves in.

For Botswana to cut its internal and external debts in the next three years to balance the budget, it will mean cutting on expenditure.

Botswana has been praised for its expansionary budget that saw lots of development projects being carried around the country, including airport, roads and dams, amongst others.

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