Sunday, August 1, 2021

Rising interest rates for Gov’t bonds worrying

Botswana’s ministry of Finance and Economic Development finds itself in a tough spot, steadily finding ways to assist a government that must meet its obligations at a time it is making less money.

Two weeks back the ministry’s top official Dr. Wilfred Mandlebe, who serves as the permanent secretary, said while the country had planned to finance its expenditure through domestic borrowing using bonds, investors are demanding high interest rates.

Dr. Mandlebe made the remarks when appearing before the Parliamentary Accounts Committee (PAC). Last year legislators at parliament approved request by the Finance ministry to increase the government bond issuance programme from P15 billion to P30 billion at the August 2020 sitting.

The P30 billion government bond programme was intended for two objectives; to primarily on the develop the capital market while acting as an alternative source of government financing, given the emergence of structural budget deficits, which totalled P21 billion since 2017.

However, it has proved hard for government to borrow from investors, who have reluctantly shown interest, and the few that have shown interest want to charge more for lending the government money.

Since the government through Bank of Botswana increased the number of government bond auctions, making them monthly, the government has failed to raise the amount of money it required at the time. In May, the central bank sought to garner P1.93 billion, but ended up raising P1 billion, with long term bonds shunned for the short-term treasury bonds that had maturity of less than six months.

The following month, in June, the government had to settle for less once again, walking away with P1.3 billion debt instead of their preferred P1.8 billion. The ministry of Finance and Economic Development has expressed disappointment at the low uptake of government bonds, with the Bank of Botswana blaming it on pricing as investors require to be paid high interest rates for borrowing government money.

Dr. Mandlebe disclosed that the ministry’s officials are working closely with Bank of Botswana to manage the rising high interest rates for government bonds, which are likely to increase the amount of statutory expenditure, which are costs prioritised by government, especially to meet obligations.

“We do not want a situation where interest rates get large and weighs heavily on how the government spends its money,” Dr. Mandlebe said.

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