Dr Keith Jefferis
BoB conducts test trade
Bond sales have become more challenging
BoB raised P6.3 billion in bond sales over the six months to September
Unsustainable financial position should be addressed head-on through a reduction in spending – economist
The planned launch of inflation-linked bonds (ILBs) in the coming months could help to ease financing pressures, given unmet demand from pension funds for this instrument, Dr Keith Jefferis, the former Deputy Governor of the Bank of Botswana (BoB) said.
The BoB has reportedly conducted a test trade a few weeks ago. It is believed that the bank wanted to ensure that there are no issues with the system or bookings before the instruments go live.
Jefferis, an economist, observed that bond sales have become more challenging, with shortfalls in the amounts raised (relative to the bonds on offer) at the last three auctions, and a necessity to pay higher interest rates.
At the October 26 auction, the Bank of Botswana raised only P2.758 billion of the P3.7 billion on offer. The government sought P350 million for 3-year bonds but secured just P40 million. Of the P450 million offered for 11-year bonds, only P117 million was raised. Additionally, P401 million was raised from the P700 million in long-term bonds auctioned.
Results for the bond auction held 26th October. Source: BoB
Even so, Jefferis said the government is more or less on track with its borrowing plan and has raised P6.3 billion in bond sales over the six months from April to September, out of a projected P9 billion (net) for the financial year as a whole.
Interest rates generally have not followed the policy rate downwards while the Bank of Botswana’s Monetary Policy Committee (MPC) reduced interest rates by 25 basis points in August 2024. The Monetary Policy Rate (MoPR) was reduced to 1.90% from 2.15%.
Graphics by Econsult
“With the significantly expanded government borrowing programme, interest rates have increased for both short-term debt (T-Bills) and long-term bonds,” Jefferis said in a Q3 report.
“The long-term government bond rate (BW012) increased to 8.87% in August 2024, up from 8.79% in May 2024, reflecting increased government borrowing.”
With the drawing down of balances in the Government Investment Account (GIA) at the Bank of Botswana to finance last year’s budget deficit, Government is now more dependent than ever on borrowing to finance its spending, mainly through bond issuance,” Jefferis said.
“But the underlying problem of an unsustainable fiscal position, evident in past years but now worsened by the drop in mineral revenues, has to be addressed head-on through a reduction in spending, in order to avoid the rapid accumulation of public debt with the risks of an eventual debt crisis.”
Graphics by BoB
Government and government-guaranteed debt as at the end of March 2024 is projected at P61.6 billion, of which P54.6 billion is the Government’s own debt, while the balance is government-guaranteed debt, according to the BoB.
Total external debt amounts to P29.5 billion or 10.6% of GDP, while domestic debt (P32.1 billion), accounts for 11.5% of GDP.
Overall, total projected Government debt as of March 31, 2024, is equivalent to 22% of forecast GDP for the 2023/24 financial year and below the statutory ceiling of 40% of GDP, with each domestic and external debt falling below the 20% of GDP limit for each category.
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