Wednesday, May 22, 2024

Everything you need to know about Botswana’s public debt

Approaching the public debt ceiling often elicits calls by lawmakers and economic experts in any given country to cut back on government spending and/or borrowing.

In Botswana, the size of the government’s debt relative to the economy or debt-to-Gross Domestic Product (GDP) ratio continues to grow, albeit still below the statutory ceiling threshold.

With the government having been on a loan shopping spree lately both in local and external debt markets, it is anticipated that the public debt will keep growing before it goes down. The appetite to acquire more debt was first signaled in late 2020 when Parliament approved a P15 billion extension in the government bond programme. At the same time, external funding options have also been explored mostly from the development funding institutions (DFI’s) as the World Bank and the African Development Bank.

With signals that the government is in desperate need for funds that will accelerate its key economic reforms and support the implementation of the country’s economic transformation plan, pundits project a further upward movement in the public debt.

Recently, minister responsible for Finance Peggy Serame said that the current public debt levels are not only within the statutory limit of 40 percent of GDP as set out in the Stocks, Bonds and Treasury Bills Act, 2005, CAP 56:07, but are also within what is regarded as low, according to international standards.

“Botswana’s debt is assessed using the Debt Service Ratio, the results are consistent with those of the debt to GDP ratio suggesting that the country’s debt levels are sustainable by international standards,” Serame said.

She said that in addition, to ensure further economic prudence, other measures such as the Debt Service Ratio (DSR) can be used as a proxy for sustainable debt levels. Debt Service Ratio measures the country’s ability to cover its debt service obligations with proceeds from its exports of goods and services.

“As at end of December 2022, the DSR stood at 12%, while international benchmark for an ideal DSR is a maximum of 20%,” said Serame.

On the rise…

The finance Ministry says as at the end of June 2023, Botswana’s total public debt to GDP stood at 18.60 percent, comprising of 9 percent in domestic debt and 9.60 percent in external debt. The government in the not so far past sought a loan not exceeding ¥15 billion from the Japan International Cooperation Agency (JICA), towards the COVID-19 Crises Response Emergency Support Programme. Another loan of $100 million was sourced from the Organisation of the Petroleum Exporting Countries Fund for International Development (OPEC Fund) while the World Bank in June 2023 approved a $150 million loan to the country as part of the bank’s programme to support economic recovery which was worsened by the COVID-19 pandemic. The loan is the last tranche of previous loans extended by the Bretton Wood institution to the diamond dependent country. In June 2021, the World Bank approved a $250 million credit under the Programmatic Economic Resilience and Green Recovery Development Policy (ERGRDP).

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