Thursday, February 9, 2023

Govt’s share of Reserves growing

The ministry of Finance has been keeping its hand off the cookie jar, allowing for the financial reserves to be replenished after they were nearly exhausted.

Total foreign assets were valued at P59.2 billion in August, a slight decrease from P60 billion balance in July. On a 12 month period, the foreign reserves increased by 9.8 percent from August 2021. Bank of Botswana manages foreign exchange reserves through two portfolios; the Liquidity Portfolio and the long-term investment portfolio know as Pula Fund.

According to the statement of the country’s financial position issued by the central bank, the Liquidity Portfolio – made up of the Liquidity Investment Tranche (LIT) and the Transaction Balance Tranche (TBT). The TBT, used for any short-term needs for foreign currency, declined to P9.8 billion in August from the P10.3 billion in the prior month. The LIT, which provides further support for medium term funding, had P4.9 million compared to P4.8 million.

The Pula Fund which accounts for a large portion of foreign reserves retreated slightly to P44.2 billion from the P45 billion in July. The Government Investment Account (GIA), which represents the government’s share of funds in the Pula Fund, has grown to P16.5 billion in August, up by 3 percent from the July balance.

The GIA is on recovery mode after it was nearly decimated in 2020, as government used its share of the reserves to finance budget deficits. The account dropped from 2019’s P18.3 billion to P2.8 billion by end of December 2020, the lowest balance on record, and finished 2021 with a P5.6 billion. While the GIA has since grown to P16.5 billion in the past eight months, it is half of what it uses to be at its peak. Prior to the financial crisis of 2008/9, the government investment account had a healthy balance of P30.5 billion in December 2008.

The Finance ministry has since 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. The finance minister Peggy Serame has said on several times that there is 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 P35 billion in the past three years.

The government’s fiscal position appears to be improving, with finance ministry expecting a budget surplus of P104 million for the financial year 2021/2022. However, the ministry officials say it is not all clear yet as they expect a budget deficit for the current 2022/2023 financial year to be P7.6 billion, before narrowing down to P163 million outrun in 2023/2024 financial year. The country is expected to return to budget surplus of P355 million in 2024/2025 and P1.2 billion for 2025/2026 financial year.

“With an almost a balanced budget in 2023/24, lower financing requirements are anticipated this time around. However, government will continue to borrow both externally and domestically in line with its objective of replenishing fiscal buffers and developing the domestic capital market,” the finance ministry officials said in the budget and strategy paper for 2023/2024 released in September.

As part of the fiscal sustainability measures, the Finance ministry has implemented a mixture of funding to smooth budget deficits without tapping into the GIA. 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. From the ten bond auctions this year, the government has raised P10.1 billion, pushing government’s domestic debt to P23.4 billion, three times than the P6.8 billion in 2015/2016 financial year. As of June 2022, external loans amount to P17.4 billion, bringing total government debt to P40.9 billion. If you include other loans where the government is the guarantor, the total government debt is P47.8 billion.

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