11 Apr 2023

Botswana’s foreign exchange reserves has decreased from P71.4 billion at the end of December 2018 to P54.5 billion at the end of 2022.

Minister of Finance, Ms Peggy Serame said this in response to a question from MP for Serowe South, Mr Leapetswe Lesedi in Parliament recently.

Ms Serame said the deterioration level of foreign exchange reserves over the five years was primarily due to unfavourable external sector performance.

She cited the successive balance of payments deficits as well as trade shocks and adverse effects of COVID-19, volatile global financial markets and the prolonged Russia/Ukraine war.

She pointed out that the recent balance of payments and government budget deficits as well as poor performance of the global financial markets led to a decrease in foreign exchange reserves.

Such state of affairs, she noted called for the need to sustain efforts for expanding the country’s productive base and productivity, diversification of producers, products and services and penetration of export markets in order to both reduce the import bill and crease capacity to earn forex.

The minister further explained that the balance of payments deficits partly resulted from Botswana’s demand for foreign currency exceeding the country’s foreign exchange earnings or receipts during that period.

Botswana, she said, earned foreign exchange such as US dollars, euros, British pounds, South African rands among others by selling goods and services to foreign countries and through foreigners investing in Botswana.

Ms Serame told the House that in that regard, most of the foreign exchange in Botswana was earned through the sale of diamonds and the share of South African Customs Union receipts.

“The country uses foreign exchange to purchase externally produced goods and services and offshore investments by firms and individuals,” she said.

The minister stated that the major uses included payment by government for external procurements and servicing of foreign currency denominated debt obligations, payments for electricity imports, day to day purchase of capital and consumer goods originating from abroad by businesses and individuals, as well as investments abroad by respective entities (pension funds, businesses investing or expanding abroad and individuals).

In addition, Minister Serame said Botswana’s foreign exchange reserves were accumulated over the years as a result of past balance of payments and government budget surpluses.

She however pointed that as a result of the prolonged Russia/Ukraine war, lingering effects of COVID-19 and the aggressive increase in interest rates by many central banks to contain inflation, the market valuation of company shares or equities fell.

Ms Serame said in the last five years, Botswana had not obtained any loan from the International Monetary Fund (IMF). 

She however stated that five loan facilities amounting to P7 925 683 496 were contracted from various multilateral and bilateral development finance institutions over the last five years.

She explained that two loans were from the International Bank for Reconstruction and Development, one from the African Development Bank, one from the OPEC Fund for international Development and the last one was from Japan International Cooperation Agency.

The House was further informed that a loan amounting to P1.91   billion for the Botswana Emergency Water Security and Efficiency Project was signed with IBRD on May 17, 2017. 

So far, she added, P691.85 million  had been disbursed. Minister Serame stated that government had not borrowed directly from domestic financial institutions, but issued government securities through Bank of Botswana on a monthly basis.

The securities, she said, were issued in the primary market where local primary dealers such as ABSA, Standard Chartered Bank, Stanbic Bank, Access Bank and First National Bank participate.

However, Ms Serame noted that as at December 2022, domestic debt outstanding stood at P26.04 billion (11.22 per cent of GDP), of which P5.24bn was Treasury Bills and P20.80bn in government bonds. Lastly, she said as at February 2023, total outstanding debt for Botswana was P49.69 billion, which was 20.07 per cent of GDP. 

Of this amount, she added that domestic debt including guaranteed debt stood at P27.78 billion while external debt was at P21.91 billion.

“The current debt levels are within the statutory limit as outlined in the Stocks, Bonds and Treasury Bills Act of 2005, which states that total public and publicly guaranteed debt shall not exceed 40 per cent of annual GDP.” She said.

MP Lesedi had asked the minister to state how much Botswana currently has in its foreign reserves and further elaborate as to what accounts for the dwindling of funds in the foreign reserves for the past five years.

He further asked how much in loans had the government taken from the IMF, AfDB, World Bank and other external lending institutions as well as development partners.

The Serowe South legislator also wanted to know how much had been borrowed from domestic institutions and how much the government owed in total, the interest rates for the loans and how long it would take to pay them as well as the level of Botswana’s public debt. ENDS