Sunday, August 7, 2022

Domestic borrowing hits P15 billion

Botswana government is to scale-up its domestic borrowing to P15 billion as part of the initiatives aimed at supporting the domestic capital markets, deputy-governor of Bank of Botswana, Oduetse Motshidisi, said on Friday.

Motshidisi indicated that under the new plan, which will come as part of the budget speech presented by Finance and Development Planning minister, Kenneth Matambo, domestic borrowing will jump from P 5 billion to P15 billion. 

This will entail an increase in the volume of bonds and treasury bills in issue and rein in international borrowing, which is fraught with currency and interest rates risks.

Last year, government plunged into a deluge of  international borrowings aimed at filling-up its financing gap which analysts warned  if it is left unchecked could expose the country to  daunting  consequences.

“The recent global economic crisis necessitated an increase in Government borrowing and a drawing down of Government’s savings. This, in turn, has required a focus on debt and finance management, to ensure that optimal use is being made of the various potential sources of funds.

“While the external ratio is approaching the limit, there is still scope for domestic borrowing to finance the deficits we are currently running. For this reason, we will be asking Parliament to approve an expanded domestic bond issuance programme later during this meeting,” said Matambo during the national budget speech last month.

‘While the external ratio is approaching the limit, there is still scope for domestic borrowing to finance the deficits we are currently running. For this reason, we will be asking Parliament to approve an expanded domestic bond issuance programme later during this meeting,” he added.

In March 2003, government set the domestic borrowing at P 5 billion ÔÇô representing┬á 6.8 percent of the GDPÔÇöand is┬á currently in the mood of scaling it up to P 15┬á billion that will be made up of a mixture of┬á bonds and treasury bills.

Treasury bills size is expected to move from P 1.3 billion to about P 2 billion under the new dispensation.

The bank has praised the┬áincrease in the treasury bills’ size┬áas that will allow┬áretail investors to participate in the┬ádevelopment of the┬ácapital markets in the country and at the same time help┬áwith the idea of mopping up excess liquidity in the market.

“I think what we need is to increase the publicity on the side of the retail investors,” Motshidisi said┬áwhen talking about the benefits of the treasury bills.

Treasury bills are short term financial instruments that are aimed at encouraging savings and government borrowing on the domestic market.

Government has had the option of flouting treasury bills since 1978, but the option was never exercised until after the revamp of the Stocks, Bonds and Treasury Bills Act in 2006.

For most of the time┬áBank of Botswana has been using the Bank of Botswana Certificate (Bobcs) as a short terms financial instrument ÔÇô a 90 days┬áproxy paper ÔÇö geared towards mopping up of excess liquidity in the market.┬á

However, the financial paper, which is risk free and paying the highest interest rates in the local market, has been rocked by controversies since the central bank limited the number of players to a select of approved commercial banks.

The┬ácurrent value of┬áBobcs stands at P 18 billionÔÇöis dominated by four foreign banks┬á┬á with┬áa lot of control from United Kingdom and South Africa.

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