The government investment account (GIA), which represents a portion of the country’s foreign reserves, nearly doubled last year as government works around the clock to restore it after it plummeted to record low levels.
Bank of Botswana’s most recent statement of financial position for the nation’s sovereign fund shows that total foreign reserves was P54.5 billion at the end of last year, slightly lower than 2022’s opening balance of P58.3 billion. The central bank manages foreign exchange reserves through two portfolios; the Liquidity Portfolio and the long-term investment portfolio know as Pula Fund.
The Liquidity Portfolio comprises of the Liquidity Investment Tranche (LIT) and the Transaction Balance Tranche (TBT). The TBT – used for any short-term needs for foreign currency – started 2022 with a balance of P6.7 billion and ended the year with P5.6 billion. The LIT, which provides further support for medium term funding, increased moderately to P5 million, up from January’s P4.7 million.
The Pula Fund, which accounts for a large portion of foreign reserves, dropped from the year’s opening balance of P46.7 billion to close off 2022 at P43.7 billion. The GIA, which represents the government’s share of funds in the Pula Fund, experienced remarkable growth as it jumped from P9.5 billion to P14.3 billion, a near double growth.
The recovery comes after the GIA was nearly decimated in 2020, with government using its share of the reserves to finance budget deficits. The account dropped from 2019’s balance of P18.3 billion to P2.8 billion in 2020, the lowest balance on record, and finished 2021 with P5.6 billion in the account. Prior to the financial crisis of 2008/9, the GIA was valued at P30.5 billion in December 2008.
With the rapid decline in the sovereign wealth fund, the Finance ministry embarked on fiscal sustainability to improve revenue collection and contain expenditure in efforts to return to budget surpluses – using the extra cash to shore up the GIA and maintain it as a fiscal buffer against future shocks.
When delivering the national budget speech earlier this year in February, the Finance minister Peggy Serame, said that it is important to note that part of the GIA is accounted for by special funds and deposit accounts, which have designated uses or are held on behalf of third parties, thus may not be automatically available for budgetary purposes.
“Low GIA levels limit the extent to which Government can draw on its reserves to finance future budget deficits, leaving borrowing as the main financing option,” the minister said in her speech.
Since her appointment as chief of the country’s treasury in April 2021, Serame has reiterated the urgent need to contain expenditures in order to manage the fiscal deficit, which is the main driver of the declining GIA. The government has been plagued by budget deficits since 2017, adding up to nearly P50 billion in the past six years.
Besides the interventions of the Finance ministry, which included increased borrowing instead of tapping into the GIA, the recovery in the diamond industry has helped increase government revenue. Botswana generates about 30 percent of its revenue and 70 percent of its foreign exchange earnings from diamonds.
Due to the strong performance of its diamonds last year, the country has forecasted lower budget deficits. The Finance ministry expects an overall budget surplus of P128 million for the financial year 2021/2022, lower than 2021/2022’s budget deficit of P16.4 billion. However, the ministry officials says the country is not out of the woods yet, forecasting a budget deficit for the recently ended 2022/2023 financial year to be P4.9 billion.
For the current financial year 2023/2024, Serame’s budget for the country forecasts total revenue and grants to come at P79.8 billion, lower than the expected government expenditure of P87.38 billion, resulting in budget deficit of P7.6 billion
Serame indicated that the budget outrun will be financed through a combination of financing options, which include issuance of P3 billion in government bonds and treasury bills, P2.7 billion from external loans, and P2.2 billion is expected to be drawn from the GIA.