There is growing appetite for government bonds, with the first auction of the year oversubscribed, resulting in government raising more than it has put in offer, according to Bank of Botswana (BoB) bond auction results for January.
The central bank, which borrows on behalf of the government, tapped on its existing bonds to raise P2 billion through a mixture of short term bonds, known as treasury bills that mature in less than a year, and long termed bonds that have more than a year maturity. Still, market participants still prefer short term lending to government.
Through the three treasury bonds that were on offer, the government raised P1.7 billion, while the two longer dated bonds got P400 million, and in total the BoB secured P2.1 billion for the government.
In 2020, parliament changed the law to increase the domestic borrowing programme from P15 billion to P30 billion, and further increased the frequency of bond auctions from 4 to 12 auctions each year. This has significantly improved bond market activity, and helped raise the much needed funds for government.
The 12 bond auctions last year brought in P12 billion, slightly below P12.9 billion raised in 2021, and higher than the P8.5 billion from the six auctions in 2020. The four bond auctions in 2019 netted P3.9 billion, and in 2018 the figure was P3.6 billion for the same number of auctions.
As a result of the frequent bond auctions, government’s domestic debt rose to P26 billion last year, three times than the P6.8 billion in 2015/2016 financial year. In a historic turnaround, the domestic debt in 2020 surpassed external loans in value, in line with government commitment to borrow more locally. As of December 2022, external loans amount to P16.9 billion, bringing total government debt to P43 billion. If you include other loans where the government is the guarantor, the total government debt is P49.9 billion.
The increase in government debt was anticipated and planned following the past difficult years characterized by budget deficits and the decline in financial buffers. The diamond dependent economy has struggled to reign in budget deficits in 2017, forced by dwindling revenues as diamond exports fell due to recession in the diamond industry.
On Monday when delivery the national budget for the financial year 2023/2024, Finance minister Peggy Serame, said Botswana’s historically debt levels have been relatively low and debt servicing has never been a challenge. Government and Government-guaranteed debt is expected to remain below 25 percent of GDP by the end of NDP 11 in March 2023, which is a sustainable level and well below the statutory limit of 40 percent of GDP, said the minister.
“However, with limited room to draw down from Government’s savings, any further budget deficits will result in increased borrowing. This trend, coupled with rising interest rates, means that we must pay attention to our growing debt service obligations,” Serame said.
“We have carefully assessed the medium-term debt risk, distress or burden and our capacity to repay. I am convinced that our envisaged fiscal strategy will restore fiscal sustainability before we are forced into a debt crisis. Ideally, however, we should be running budget surpluses so as to rebuild our financial buffers to provide resilience in the event of shocks as well as to minimise further debt accumulation.”
