Monday, October 19, 2020

How will gov’t finance the ESP?

President Khama’s announcement of the Economic Stimulus Package (ESP) sparked intense speculation on how the stimulus package will be funded. Local economic think tank Econsult suggested that to fund the stimulus package, government can either draw down its savings at the Government Investment Account (GIA) held by the Bank of Botswana (BoB); or borrow through bond issuance; or employ a combination of the two. 

In the absence of information detailing its content, timing, magnitude and funding, Econsult highlighted in its economic review that it could not adequately assess the likely impact of the economic stimulus package. However, the economic think tank did caution against the focus on additional short-term spending distracting attention from the need for fundamental structural reforms that will addresses competitiveness and productivity issues, which are essential for sustainable long-term growth and job creation.

“A rush to implement projects under the stimulus package is unlikely to see these fundamental issues addressed,” said Econsult.

Information on the GIA suggests that if the need arises, the Pula Fund could be drawn down as government draws from its investment account to pursue agreed national development objectives. This means that if government believes that funds in the Pula Fund are needed to be put into productive investment in the country, then the Pula Fund could be drawn down. The onus of drawing down the Fund is determined by the capacity of the proposed national projects to be translated into productive activities, which given its proclaimed strict management ensures that the activities produce a return that justifies the investment made. According to information from the Bank of Botswana (BoB), management of the assets in the Pula Fund is subject to a regular review of the entire investment strategy, which is agreed between the Governor as manager of the Pula Fund and the Minister of Finance and Development Planning, representing the owner of the assets; government, the sole shareholder of the Reserve Bank.

However, the management rules clearly stipulate that in its role as investment manager, the BoB is operationally independent from the owner, government.

“Government cannot withdraw more than its share of the Pula Fund, represented by the Government Investment Account, to finance the budget, which has been approved by Parliament,” state the rules.

This clearly suggests that the magnitude of the ESP, anticipated in the 2016/17 budget, will be limited to how much is available through the Pula Fund, plus any additional amounts that may be raised by borrowing through bond issuance. 

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