Monday, December 6, 2021

The Foreign Reserves’s long walk to recovery

Botswana’s foreign reserves have improved slightly on the back of increased diamond exports.

Total foreign assets were valued at P52 billion in July, up from P50.9 billion registered in June. In a 12-month period, the foreign reserves declined by 22.3 percent from the P63.6 billion recorded in July 2020.

The Bank of Botswana manages foreign exchange reserves through two portfolios; the Liquidity Portfolio and the long-term investment portfolio know as Pula Fund.

According to the statement of financial position released on Friday by the central bank, the Liquidity Portfolio – made up of the Liquidity Investment Tranche (LIT) and the Transaction Balance Tranche (TBT), led to increase in foreign reserves. The TBT, used for any short-term needs for foreign currency, was up to P1.77 billion from P1.7 billion. The LIT, which provides further support for medium term funding, jumped slightly to P2.1 billion from P2 billion.

The Pula fund which accounts for a large portion of foreign reserves increased from June’s P45.4 billion to P46.3 billion in July. The increase was in part helped by slight improvement on the Government Investment Account (GIA), which represents the government’s share of funds in the Pula Fund and Liquidity Portfolio.

The GIA was padded slightly to grow to P4.1 billion, up from the previous month’s P4 billion. In May, the government’s share was P3.8 billion, reversing the gains made in April after it shot to P5.6 billion. Botswana’s fiscal position was compromised in 2020 after the COVID-19 pandemic forced the government to raid the GIA, leading to the account’s worst decline – plunging from 2019’s P18.3 billion to a paltry P3.3 billion by end of December 2020, the lowest level since the fund was established more than two decades ago.

The funds were used to plug budget deficits and other government expenditures at a time when the diamond sales were depressed, which meant less revenue for government that relies heavily on diamond exports.

Prior to the financial crisis of 2008/9, the government investment account had a healthy balance of P30.5 billion in December 2008.

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