Government debt and guarantees increased to P37.2 billion in December 2021 from P32.3 billion in December 2020 (22.6 percent of GDP in December 2021 compared to 21.5 percent of GDP in December 2020), a report released by the Bank of Botswana (BoB) recently indicates.
Titled Financial Stability Report (FSR) of June 2022, the report was prepared by BoB in collaboration with the Ministry of Finance and Economic Development (MFED), the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), the Financial Intelligence Agency (FIA) and the Botswana Stock Exchange Limited (BSEL). It was approved for publication by the Financial Stability Council (FSC), a multi-agency body launched in 2019 to collaborate and exchange information on financial stability issues affecting Botswana’s financial system.
“Total domestic borrowing and guarantees amounted to P25.1 billion (11.7 percent of GDP) in December 2021; substantially below the statutory domestic borrowing limit of 20 percent,” reads the report. “External debt is estimated at 10.9 percent of GDP in the same period, which is also below the 20 percent threshold for Botswana. Meanwhile, it is expected that the fiscal impact of the COVID-19 pandemic will be felt until the 2022/2023 fiscal year.”
The FSR indicates that the resultant high budget deficits imply a substantial funding requirement to stimulate economic activity amid the COVID-19 pandemic and bolster the economy’s resilience to future shocks, which is being met through domestic government bond issuance, as well as external borrowing. “During the second half of 2021, Government secured a USD250 million (P2.8 billion) loan under the Programmatic Economic Resilience and Green Recovery Development Policy Loan, International Bank for Reconstruction and Development (IBRD), for financing of economic recovery,” shows the report.
The report further reads that the country’s long-term borrowing costs are likely to be positively affected by the upgrade from the ‘negative’ to ‘stable’ outlook conferred by S&P Global Ratings (S&P) in September 2021.
“The “stable” outlook is on the backdrop of the anticipated economic recovery, which is to be driven by the expected strong recovery in the diamond market which, in turn, should result in a substantial improvement in performance of the domestic fiscal and external sector,” the report shows. “The rating agency (S&P) also affirmed the sovereign credit ratings for long and short term foreign and domestic currency at “BBB+/A-2”. The ratings are underpinned and supported by the country’s robust and predictable institutional and monetary policy frameworks; modest net general government debt levels and relatively strong net external position; all of which support durable macroeconomic stability.”