14 months of import cover
By March 2018, Botswana’s foreign reserves stood at P70.5 billion, a significant decline from the P73.9 billion as at March 2017.
Bank of Botswana (BoB), the custodian of the funds did not mention what caused the decline in their financial statement.
Botswana’s foreign reserves assets, are made up of six sub-categories, three of which are at the International Monetary Fund.
These accounts are the Transactions Balances Tranche, the Liquidity Investment Tranche, and the Pula Fund. At the International Monetary Fund, Botswana has the Reserve Tranche, Holdings of Special Drawing Rights and the General Subsidy Account.
A major decline was recorded in the Transaction Balances Tranche account, which saw its balance declining by half. By March 2017, the account had P6.3 billion, but the money declined to P3.5 billion in March 2018. Transaction balances Tranche caters for short term foreign currency needs in the local market.
The Liquidity Investment Tranche declined from P10.2 billion in 2017 to P9.9 billion in 2018. Fortunately, the Pula Fund, which is Botswana’s most important foreign account did not record a major decline. The account held P55.6 billion by March 2018, a marginal decline from P55.9 billion in March 2017.
The Pula Fund is a long-term investment portfolio. The fund was established in 1994 with the aim of preserving part of the income from diamond exports for future generations. By creating a separate investment portfolio, it was possible to provide more appropriate, longer-term investment considerations in the guidelines for its management.
Foreign exchange reserves that are in excess of what is expected to be needed in the medium term are transferred to the Pula Fund and invested according to these investment guidelines. The Pula Fund is a Sovereign Wealth Fund (SWF) and, given the long experience in managing this fund, the Bank has been closely involved in international discussions regarding prudent management of SWF’s and in the formulation of Generally Accepted Principles and Practices for SWF’s, also known as the Santiago Principles.
At the IMF the Reserve Tranche held P385.7 million, having declined from P481.8 million in 2017. The Holdings of Special Drawings Rights had rather increased to P928 million from P851 million in 2017 March. General Subsidy Account had P21.1 million.
The last time foreign reserves dipped below P71 billion was in March 2014 when they were pegged at P70.1 billion. The current level of foreign reserves is equivalent to approximately 14 months of import cover. Although they have declined the reserves are still significant, the central bank is required to maintain at least six months of import cover in the foreign reserves.
- The last time foreign reserves dipped below P71 billion was in March 2014 when they were pegged at P70.1 billion.
- The current level of foreign reserves is equivalent to approximately 14 months of import cover
- A major decline was recorded in the Transaction Balances Tranche account, which saw its balance declining by half.