Saturday, September 26, 2020

REVEALED: Botswana’s double digit Chinese loan

Botswana has received its largest loan to date from China, aimed at financing the country’s infrastructure projects. The new details surrounding the loan comes almost two months later since President Mokgweetsi Masisi went on a state visit and also attended the 3rd summit of the Forum on China-Africa Cooperation (FOCAC).

Masisi revealed Tuesday at a Kgotla meeting in Molepolole that Botswana has secured a P10.2 billion loan from China, ending months of speculation about the size of the loan. While the loan details have been kept under wraps, the country’s ministry of Finance and Economic Development  had said they were seeking as much as P12 billion to finance infrastructure development.

Before president Masisi’s state visit to China, the world’s second largest economy had written off some of Botswana’s loans amounting to P80 million. After his meeting with president Xi Jingping, the few details that made it into the public discourse was China has extended P340 million as grant and an unspecified loan amount, which now we know to be P10.2 billion.

China – already Botswana’s biggest credit provider in terms of loans from governments – brings its total outstanding loans to Botswana to P10.5 billion, not including the grant recently given. Masisi also revealed that the country has received a P1.5 billion loan from the World Bank to address water shortages in the country.

The latest figures from Bank of Botswana, which covers financial statistics for the month of July shows that the country’s total external debt is P17.8 billion while the domestic debt stands at P11.1 billion, bringing total debt to P28.9  billion or  16.6 percent of the 2017  GDP value. Adding in the new loans, Botswana’s total debt exposure is at least P40.6 billion, roughly 23 percent of the GDP.

China’s soft loans to Africa, marked by low interest rates and little oversight, have been viewed with suspicion by some observers, including the West, accusing the country of predatory lending. Part of the theory is, with many African countries trapped in debts, they will have no choice but to make serious concessions to China, including giving up their strategic resources or assets.

However, China has denied such insinuations, and insists its investment strategy is simply part of the Belt and Road Initiative, its $1 trillion plan to build a new trade network. China is estimated to have forked as much as $150 million in loans since 2000, and some data indicates that China’s loans to Africa are currently in excess of $14 billion.

President Masisi has defended his position to borrow from China, stating that China allows them to negotiate the terms and if they don’t agree with the terms, they simply do not take the loans. Masisi said they are “in business” and will take “cheap money.”

“I’m comfortable in what we have borrowed from China. It’s only P10.2 billion, about $1 billion. It’s not going to break the bank for us. And we will work the terms so that we can actually pay is off,” Masisi said after his trip to China when addressing the media in the United States.

Botswana has recently been given thumbs up for its strong balance sheet, net external creditor position and low debt burden by Moody’s – one of the leading credit ratings agencies.

Moody’s says Botswana’s sound external position, modest government borrowing requirements, healthy banking system and overall stable political environment mean it has low susceptibility to event risk. The report observes that the stable rating outlook reflects Moody’s assessment of policymakers’ continued commitment to a prudent fiscal stance while utilizing some of the significant fiscal policy space.

“Its fiscal strength is supported by a low debt stock, with a very small foreign-currency exposure and a strong government balance sheet. Moody’s expects general government debt to remain at around 16.0% of GDP by 2019, compared with a peak of 20.7% in 2011. The government’s cost of debt is likely to remain very low in the near term,” the ratings agency added.

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