11 Mar 2014

The Assistant Minister of Finance and Development Planning, Mr Vincent Seretse has said the Bank of Botswana Act establishes the legal framework for the management of the foreign exchange reserves.

Answering a question from Shoshong MP, Mr Seretse said the act provided that the central bank shall be responsible for establishing and maintaining a Primary International Reserve (Liquidity Portfolio), which shall in general consist of short term assets.

The act also provided for establishment of the long term investment fund (Pula Fund), subject to meeting the requirements of the primary reserve. Mr Seretse said investment objectives for the reserves were in order of importance, safety, liquidity and return.

Talking about the Pula Fund, he said return took priority over liquidity while safety continued to be a main objective for both the Liquidity Portfolio and the Pula Fund. He said a comprehensive review of the bank’s reserve management policies and guidelines was undertaken every three to four years and approved by the board.

He said the last review was conducted at the end of 2011 and no major changes were introduced as the existing investment strategy was deemed robust and up to date.

Mr Seretse said there are no locally based financial institutions participating as brokers or agents in Botswana’s foreign reserves value chain. He said only one locally based financial institution applied for participation in the past but it could not meet the criteria.

The system does not discourage financial institutions from participating as long as they meet the criteria, he said.

Mr Seretse said the employment of external fund managers, brokers and other counterparties, whether resident in country or abroad, is based on the capacity and where applicable external ratings assigned by reputable rating agencies.

He said this is done to ensure that only institutions with requisite standing and capacity are employed for the reserves management function.  The foreign reserves funds are not invested locally because the economy does not have the capacity to absorb all of the funds. 

This is why there is excess liquidity which the Bank of Botswana continues to address, he said.

He said foreign reserves are assets held by central banks or monetary authorities in foreign currencies to purchase foreign goods and services as well as pay off the country’s foreign currency debt obligations.

Botswana’s foreign exchange reserves have arisen due to past balance of payments and government surpluses resulting from prudent public expenditure programmes. 

The assistant minister said part of the foreign exchange reserves are reflected in the excess liquidity that has characterized the local economy, which Bank of Botswana has absorbed through the issuance of Bank of Botswana Certificates.

He said the reserves are available for local investors and government to purchase foreign goods and services that can be used in productive investment in the economy.

“The Bank of Botswana manages the foreign exchange reserves to ensure they are safe and secure, and can be called upon by Botswana investors and government when the opportunity for production investments arises,” he said.

Shoshong MP Dikgang Makgalemele had asked Finance and Development minister to state the broad provisions of the Botswana Foreign Reserves Policy and when the policy was last reviewed and if any reforms were introduced.

He further asked whether any locally based financial institutions benefit as brokers or agents in Botswana’s foreign reserve value chain.

Mr Makgalemele also wanted the minister to state why these foreign reserves are not invested locally given that financial institutions in Botswana have matured over time and such a move could help re-energise the economy. ENDS