Friday, November 27, 2020

External borrowing put on spotlight again

Government’s decision to borrow capital to finance the budget deficit abroad was last week scrutinised again after the revelation that treasury was recently in Washington to solicit funds to offset the budget deficit.

Even the Central Bank governor, Linah Mohohlo, says “madi a teng”, meaning there is capital). When quizzed by the media at the launch of the Bank’s annual report last week on the tendency to borrow abroad rather than the local market, she said, “It may cost them (government) more to borrow domestically, but it will benefit them in the long run.”

Finance Minister, Baledzi Gaolathe, has said government was in talks with the African Development Bank (AfDB) for a budget support of P10.8 billion and another P2.2 billion from World Bank.

Mohohlo revealed that experts have said that there is P17 billion in the systems, while the deficit is around P13.4 billion, which means it could be financed locally.

The loans from the two multilateral lenders, the government said, will help the country reduce dependence on the foreign exchange reserves.

Meanwhile, the Bank admitted that the government has been helping the domestic capital markets even before a deficit with efforts that started in 2003 with P2.5 billion government bonds issuance.

Recently, there was another P3 billion bond issuance to be issued over time. The governor, however, said regarding the mopping of excess liquidity in the system, government cannot do alone.

“Government cannot do it alone,” she said, imploring primary dealers, like banks, to come to the party and help government efforts.

Razia Khan, Standard Chartered Bank’s London-based Regional Head of Research for Africa, has previously told Sunday Standard that they urge Botswana government to do more to develop the domestic capital markets.

“The Botswana government has a lot of options, like borrowing domestically by borrowing on its deposit with Bank of Botswana (BoB).”

“There is sizeable money in the economy and system to borrow from. There is a need to create long term bond issuance market,” she added.

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