Monday, May 17, 2021

External debt law will have to be amended ÔÇô Gaolathe

The Gaborone Bonnington South MP, Ndaba Gaolathe, says that in a future where government revenues dwindle, it will be absolutely necessary to amend the Stock, Bonds and Treasury Bills Act to adjust to the new reality.

“Every country that has set government borrowing ceilings in absolute terms will have to revise the ceilings periodically to adjust for and take into account changes in the size of the economy. An economy may double within a period of five, seven or ten years and hence the same for the borrowing needs,” he says.

In terms of the Stock, Bonds and Treasury Bills Act, “the total foreign debt and government guaranteed debt shall not exceed 20 percent of the annual gross domestic product.”

For years, Botswana’s economy has been dependent on diamonds but they have begun to lose their sparkle. It is anticipated that 20 years from now, revenue from diamond mining will contribute next to nothing to GDP. Botswana’s own private sector strategy envisages a day when diamond deposits are reduced and the non-diamond mining private sector becomes the new engine of economic growth.

Gaolathe mentions the stagnation of traditional and lucrative sources of income (especially mineral revenue) among reasons that will force the government to borrow extensively.

“Government will out of necessity borrow or have to borrow extensively in the future. Remember government is not just the central government but parastatals and municipalities,” he says.

That aside, he adds that even when a government (or any entity or person for that matter) is flush with cash, there is still need to borrow money.

“Borrowing can be strategic, especially in cases where the costs of borrowing are much lower than what government or the entity in question is receiving from increased investments,” the MP says.

Late last year, Botswana’s external debt controversially became the focus of an African Development Bank report which claimed that the government had breached the statutory limit.

“The stock of Botswana’s gross external debt rose sharply in recent years due to increased borrowing to address the shock arising from the global economic crisis; it decreased to 26 percent of GDP in 2013 from 28.5 percent in 2012,” the report says.

Those figures were challenged by Boineelo Peter, who is the Director Budget Analysis and Debt Management in the Ministry of Finance and Development Planning. Peter said that external debt stood at 18.63 in 2011/12 and that as at the end of 2013/14, total debt stood at 21.99 percent – 15.76 percent in external debt and 6.22 percent in domestic debt.

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