Government has revealed the terms of a loan agreement between the government of Botswana and the World Bank of an amount of US$250 million which was authorised by the National Assembly.
The terms of the loan agreement are that it has front-end fee of 0.25 percent (which will be paid from the loan proceeds) and commitment fee: 0.25 percent on undisbursed balances. Information contained in the agreement is that the loan’s interest rate will be variable reference rate of 6 months US$ LIBOR, which is currently at 0.16 percent, plus a variable spread (based on World Bank funding costs, which is currently at 0.52 percent). Added is that this then results in total interest rate of 0.68 percent.
Speaking at the signing ceremony, Minister of Finance and Economic Development, Peggy Serame said the tenor for the loan is 10 years maturity period inclusive of three years grace period. Serame stated that the proceeds of this loan will support Government in responding to the COVID-19 pandemic, strengthening private sector development and promoting a resilient, green recovery.
“This is the first Budget Support loan that the government of Botswana has secured from the World Bank, as previous loans have been project loans,” said Serame.
She said that the signing of the loan agreement marks the culmination of a process that started following the 2020 Annual Meetings of the World Bank and IMF. She stated that during the discussions held as part of those meetings, the World Bank and government agreed to consider a budget support loan in order to meet financing needs arising from the challenges posed by the COVID-19 pandemic.
She is of the view that it is worth noting that the World Bank Group has extended financial assistance to Botswana since Independence, initially through the soft-lending window of International Development Association. She added that this window is meant to assist low income countries by offering concessional financing loans. Serame said a second category of assistance received was the extension of Technical Advisory Services, and the third was through Capacity Building by availing slots for attachments of young professionals.
“Since the country graduated to middle income status, the World Bank has extended project financing loans. Currently outstanding loans include projects in the Electricity, Health, Energy, Transport and Water Sectors,” said Serame.
She observed that the Covid-19 pandemic has resulted in reduced revenues for government and increased pressures on expenditures due to immediate health and related needs, and more broadly the economic and social support measures put in place to assist vulnerable firms and households. She said this has resulted in significant anticipated budget deficits in the medium term. She is of the view that to finance these deficits, government will secure funding through a combination of domestic borrowing through the issuance of government securities, and external borrowing, mainly from the multilateral development banks.