Tuesday, June 22, 2021

Losses on Govt’s forex transactions cost P50m

For the past couple of years, government has periodically pumped approximately P50 million into the Foreign Exchange Stabilisation Fund.

This information was revealed when Minister of Finance and Development Planning, Kenneth Matambo, asked parliament for P12.9 billion from the Consolidated Fund Revenue to three funds: the Domestic Development Fund (DDF), the Tertiary Education Development Fund (TEDF) and the Foreign Exchange Stabilisation Fund (FESF).
From this figure, the latter (which was established for the purpose of offsetting losses on foreign exchange transactions made by Government, any Government institution or statutory corporation) gets P50.7 million.

However, Gaborone Bonnington South MP Ndaba Gaolathe, felt that there was an information gap that the Minister needed to fill. The MP, who is himself an economist, said it would have been helpful if Matambo had justified the latter figure.

“I do not think it should be assumed that members of the house or the public would know where that amount comes from,” Gaolathe said.

The answer was that “we have been looking at the trend on this account; that is how much replenishment into the Fund we had to do in the years that have passed. That is how we arrived at that amount.”

Also called the Equalisation Fund,┬áthis is a fund maintained by a government to control the foreign exchange quotation of its currency by stabilising and synchronising inflow and outflow mismatches. It helps avoid the ‘Dutch Disease’ which affects countries that are excessively dependent on natural resources: when they experience a boom, there is a lot of foreign cash inflow leading to the strengthening of their currencies which in turn leads to their manufacturing sector becoming less competitive as their exports become more expensive.

The Kingdom of Bhutan, a landlocked country in South Asia located at the eastern end of the Himalayas, has benchmarked with Botswana for its own Stabilization Fund. Botswana was chosen on account of being a natural-resource-dependent developing country and one of best-performing in Africa and having previously grappled with the Dutch Disease.

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