As government of Botswana looks at drawing cash from its foreign exchange reserves that accumulated during global economic boom and external borrowings, it has been advised that it would be wiser to borrow domestically to finance the anticipated deficit at a lower cost.
“We strongly urge government to do more to develop the domestic capital markets. It will allow the government to spend more,” Razia Khan, Standard Chartered Bank’s London-based Regional Head of Research for Africa, told Sunday Standard.
“The Botswana government has a lot of options like borrowing domestically by borrowing on its deposit with Bank of Botswana (BoB),” advised Khan.
Government is said to have P18 billion on Bank of Botswana Certificates (BoBCs), instrument used by the Central Bank for liquidity sterilisation.
During the 2009/10 fiscal budget speech, Finance Minister, Baledzi Gaolathe, said that the forecast record budget deficit of P13.4 billion will be financed through own reserves and by domestic, foreign borrowings.
Botswana’s foreign exchange reserves amount to P72 billion as of last November — that represents 28 months import cover—although they are under threat as they continuously finance imports as exports of diamonds and other commodities dwindled.
Khan added that if there is a developed capital market, foreign companies can come to Botswana and create funding sector in the country.
She said that there is appetite from asset management and insurance companies that want longer term assets and possibilities to reduce costs during credit crisis.
“There is sizeable money in the economy and system to borrow from. There is a need to create long term bond issuance market,” she added.
Khan’s comments echoes others made in the past by the captains of the industry who said that Botswana could use its rating to borrow rather than deplete foreign exchange reserves.
Montwedi Mphathi, BCL General Manager was quoted in a daily newspaper in Selebi Phikwe that “this is the time to utilise our good credit rating. A good credit rating means you are capable of repaying, and this was the opportunity to borrow rather than use accumulated (foreign exchange) reserves.”
Meanwhile, Khan came to the rescue of Botswana’s down grading by Standard & Poor’s and Moody’s Investor Service recently.
Rating agency, Standard & Poors, has adjusted Botswana’s outlook from ‘stable’ to ‘negative’ on the expected budget deficit that might wipe out the country’s foreign savings.
On the other hand, Moody’s Investor Service has revised its credit rating outlook for Botswana from positive to stable, citing a potentially lengthy downturn in the diamond industry while also downgrading the domestic currency rating from A1 to A2, also with a stable outlook.
“Rating agencies have been heavily criticised and they are now moving to cover themselves,” she said, adding that they are reacting to the situation that will keep Botswana on ‘negative watch’.
Rating agencies have been blamed for using the global financial crisis to down grade everyone including world richest people like Warren Buffet.
“You should have the trust of the market that the deficit is temporary and indefininate,” she advised adding that the analysis was over done.
‘There are lenders in Botswana who want to lend in the long term.”