Botswana government is set to go into a big borrowing spree next week when it will be approaching┬áBotswana Stock Exchange (BSE) to raise over a billion pula┬áthrough a variety of financial instruments in a bid to keep pace with its spending.
The move will consolidate the perception that Botswana government is┬áclose┬áto becoming a “net debtor” as it has broken┬áits record of setting spending below 40 percent of the Gross Domestic Product (GDP)┬áin the recent years.
Government has always maintained a ceiling of 40 percent of the GDP but right now its borrowing is at 46 percentÔÇömaking it the most alarming debt incurred by Botswana government┬áin modern history.
A local economist, Dr. Keith Jefferis,┬áin a document to the parliamentary Public Accounts Committee, highlighted grim consequences of Botswana Government’s high appetite for spending.
Jefferis has pointed out that the pattern to spend more money than is being generated has breached a long-standing policy objective of building up financial assets to replace depleting mineral resources.
As a result, said Dr. Jefferis, Botswana is close to becoming a “net debtor.”
In a document circulated this week, government is poised to borrow┬á over┬áP 1.3 billion┬á in the coming week, which┬áis made up of P 600 million┬áT-bills and the yet to be introduced┬á BW 008 that will be valued at P 300 million┬á government bond.
Further, government will┬ásought to raise┬áP 400 million to top up BW 003, BW006 and the recently issued and not well received BW 007 bond.
BW 008 will be┬áa long dated┬áinstrument, which is expected to mature on┬áSeptember 8, 2020 and will be priced at 7.75 percent per annum.
“The notes described herein shall be named BW 008 at 7.75 percent fixed rate notes due on September 8, 2020, first issued on 08 September 2010. The principal amount outstanding in respect of the issue shall be BWP 300 million,” the bank said.
Government, through Bank of Botswana, further stated that┬á┬á P 600 million┬áthat is to be raised through T-bill will be redeemed on March 9, 2011. The T-bill will not be listed on BSE but will be auctioned through Bank of Botswana with┬ácommercial banks acting as principal dealers.
The┬á latest attempt by government to raise┬á P 1.9 billion┬á earlier this year were not successful for a number of reasons with some bidder saying that the interest offered by government┬á was below the inflation rate.
“Government was looking to raise P1.9 billion, which would have exhausted their P5.0 billion note program. ┬áIn response to the market’s request for longer dated paper, a new 15 year bond was announced paying an 8.00 percent coupon. ┬á
“All issues were oversubscribed (as was expected) with the Central Bank receiving bids for P2.658 billion. ┬áPricing, however, was a sticking point, with the Central Bank opting to reject most bids submitted for the new 15-year issue and to a smaller extent the BW03. ┬á
Consequently only P1.387 billion of the planned P1.9bn was allotted, meaning the government did not meet their funding requirement or local demand at this particular auction.
“This means that Government has the option to come back to the local market at a later stage, as they still have capacity in their existing note programme. With the issues being heavily oversubscribed and not fully allotted, local appetite for government issues remains strong. ┬á
Whether Government will be able to issue debt at what they consider to be more favourable borrowing costs, can only be answered at future auctions,” Keitumetse Modise, of Allan Gray,┬áhas said.