Botswana’s Financial Stability at Risk
The COVID-19 pandemic and the necessary disease containment measures will continue to have an adverse effect on economic performance in the short term
Experts say that If the pandemic becomes more protracted, it will further elevate risks to financial stability; in particular potential increase in default of bank loans and insurance premiums payments or contributions to pension funds, as well as, early pension withdrawals emanating from loss of employment and, the Financial Stability Council (FSC) said.
The Financial Stability Council (FSC) met on August 25, 2020 to deliberate on recent developments in the financial sector, as well as to address regulatory and public interest issues relating to the stability, performance and prospects for the do mestic financial sector.
The FSC was officially launched in February 2019, and comprises senior officials of the Ministry of Finance and Economic Development (MFED), the Bank of Botswana (the Bank), Non-Bank Financial Institutions Regulatory Authority (NBFIRA), and Financial Intelligence Agency (FIA). These authorities have signed a memorandum of understanding (MoU) for the purpose of information sharing, cooperation and communication in the implementation of a macroprudential policy framework for Botswana.
According to the FSC, overall, not-withstanding the challenges engendered by the onset of the COVID-19 pandemic, the domestic financial system continues to be resilient, characterized by strong capital buffers, liquidity position and profitability. The enduring stability of the financial system according to FSC is supported by a sound macroeconomic environment, efficient market infrastructure and effective le-gal and supervisory frameworks.
“Therefore, these favourable conditions enable the financial sector to perform its role and support economic activity in different economic cycles. Notwithstanding this positive macro prudential assessment, the FSC noted emerging vulnerabilities and elevated risks requiring close monitoring. These risks are associated with the structure and performance of the economy, as well as the impact of the COVID-19 pandemic, notably: the dependence on the external sector and, in particular, reliance on a single commodity for export earnings and related vulnerability to exogenous shocks,” the FSC noted.