The demand for the pula among private sector borrowers is so high that lately, the African Development Bank (AfDB) has been mulling the idea of designating it as a lending currency.
Since 2005, AfDB has issued a series of offshore bonds linked to the Botswana pula, Ghana cedi, Kenya shilling, Tanzania shilling, Uganda shilling, Zambian kwacha and the Nigerian naira as part of its Local Currency Initiative. The Bank currently has authorisation to issue domestically in over 10 African markets including, the CFA Franc zone, Zambia, Ghana, Egypt, Tanzania and Kenya.
With transactions in these currencies, and as Standard & Poor’s acknowledged last year, the bank has provided additional depth and quality to local capital markets and a more creditworthy option for African soft-currency investors.
In the Country Strategy Paper 2015-2019 for Botswana which has just been released, AfDB says that in line with its policy framework for lending in local currencies of regional member countries, it is “currently considering designating the pula as a lending currency of the Bank to meet the demand for pula loans that has been expressed by private sector borrowers. In order to lend in local currencies, the Bank would have to issue local currency bonds in the domestic market; do a cross currency swap; or extend a synthetic local currency loan.”
The bank has a mandate to develop African capital markets, and considers issuing bonds in these markets as a way to achieving this goal by providing a new asset class (supranational), introducing innovative structures (like amortising bonds), introducing best practices in terms of documentation, extending the yield curve and establishing a non-government benchmark.
“Typically, the bank looks to issue longer tenors to match the typical financing requests it receives, that is, 7 ÔÇô 15 years. This would help to somewhat address the needs of institutional investors in Botswana, who are not only looking for more pula assets but also longer dated investments. Preliminary discussions with institutional investors have indicated that they would welcome a potential issuance by the Bank,” the AfDB says.
According to Standard & Poor’s, strong demand for the bank’s lending led to a nearly 30 percent increase in its loan portfolio during the global financial crisis in 2009.