The Bank of Botswana (BoB) has disassociated its ballooned foreign reserves from benefiting from the impact of devaluation. When launching its annual report for 2006 this week, the Central Bank revealed that its foreign exchange reserves stood at P48 billion ÔÇô an increment of 39 percent compared to the previous year.
Foreign exchange reserves account for 90 percent of the Bank’s assets, which ended the year at P48.2 billion. When government devalued the currency by 19.5 in a space of 15 months in 2005 and 2006, there was widespread outcry. Economic commentators argued that government was in a bid to shore up its balanced sheet by earning more Pula currency from US Dollar earnings. The government has substantial earnings in US Dollars in the form of mineral revenue and foreign reserves. The Central Bank said this week that even if the impact of devaluation was to be discounted out, the result would be negligible. The Bank was more prepared to be quoted in US Dollar denomination as a gauge of the reserves performance. In US Dollar terms, the reserves jumped up by 26.7 percent and that translates to 30 months of import cover. The increase in assets is largely attributed to three variables: dividends on reserves, surplus in stock and devaluation. Overall surplus on the balance of payments widened, largely driven by the large trade surplus as well as the good performance in international financial markets.
Giving provisional estimates for the year under review, the annual report notes that total foreign liabilities were estimated to have increased by 21 percent from P12 billion to P15 billion. The increase was reflected in the value of all the three components, being: direct investment, portfolio investment and other investment. The net international investment position was estimated at P60 billion, a significant growth when compared to P43 billion that was recorded in 2005.
On the other hand, the Central Bank authorities bemoaned the continued undiversified status of the economy. The dependence on mineral performance showed that when the mining sector gets a knock, the impact would trickle down to the whole economy. Contraction in overall Gross Domestic Product (GDP) in the fiscal year 2005/2006 was blamed on the sluggish performance of the mining sector. The economic situation was not helped by the fact that other sectors also recorded a sluggish performance. Growth in the non-mining sector fell by 1.3 percent compared to 2005 as it registered 2 percent relative to 3.3 percent that was achieved the previous financial year. Using ‘Herfindahl Index’ to measure concentration of economic production, the primary sector notched down from a peak of 0.30 that was registered in 1988/89 to settle at an average of 0.21. Even the share of the secondary sector in the country’s output showed some decline with significant decreases in contribution emanating from manufacturing and construction.
“These trends should, however, be viewed in the context of the phenomenal growth of mining which tends to mask even a respectable growth of the other sectors,” reads the report. The report further praises the components of the services sector for having increased their share of the GDP except for trade, hotels and restaurants. The services sector is said to indicate a much faster development compared to the secondary sector.