- Tsaone Segaetsho
Rand Merchant Bank (RMB) has put into perspective the decision to approve an increased ceiling for government bond issuance programme from P30 billion (USD 2.1 billion) to P55 billion (USD 4.1 billion).
In an interview with The Executive Botswana, RMB economist, Gomolemo Basele, said despite the government’s increased appetite to issue debt, they expect that Botswana’s debt exposure will remain below the 40 percent of the GDP self-imposed threshold through to 2027.
“That is how we see it in RMB and that no further risk will be taken. Currently, the debt exposure sits at 20.6 percent of the GDP and is bound to double into 2027. We need to remember that even in 2020 when we had the COVID-19 pandemic, we didn’t breach 30 percent,” said Basele.
Basele’s summary comes after Minister of Finance, Peggy Serame requested for the ceiling for government bond issuance programme to be increased, which was approved earlier this week.
Providing further insight on the past and future of Botswana’s debt exposure, Basele and other RMB experts said the government bond issuance programme came into formal operation in 2004, enabling the issuance of both government bonds and treasury bills up to a limit of P5 billion or USD 374 million at the time.
“The motivation for implementing the programme was the need for long-dated securities to cater for the growing pension fund industry’s asset and liability matching. Since 2004, the issuance programme has been increased twice, first in 2011 by P10bn (c.US$747m) and by a further P15bn (c.US$1.1bn) in 2020, with the introduction of more notes in each instance.”
Basele also added that given this recent increase in the issuance programme, the government seeks to use a significant portion of the proceeds to finance the budget in the medium term – and government expects to raise P13.1 billion (USD 979 million) from the domestic debt market in the 2024/2025 finncial year alone.
“Given amendments made to the Retirement Funds Act (2022), which call for asset managers to increase their local investment allocations to 50% by 2027, the higher issuance ceiling provides a safe investment avenue for the repatriated funds, given the limited depth of the local capital market,” said Basele.
He further indicated that the government is considering the introduction of other debt instruments, such as inflation linked bonds, to assist with inflation hedges at longer maturities.
