Botswana receives P2.8bn loan from World Bank
☛ Amount to finance part of the P7.2 bn deficit ☛ Government turns to issuance of Treasury Bills, Government Bonds
This is so because we have achieved all prior actions, which include approval by Parliament of the Credit Information Bill
The government is expecting the budget support loan of P2.8 billion from the World Bank to be deposited with the Bank of Botswana before the end of this month.
In an interview Permanent Secretary in the Ministry of Finance and Economic Development, Dr. Wilfred Mandlebe said they expect the imbursement any time this month.
“This is so because we have achieved all prior actions,” which include approval by Parliament of the Credit Information Bill.
According to Mandlebe, the budget support loan will be disbursed into the consolidated fund. This money will then be available to finance part of the approved budget for the financial year 2021/ 22, following a projected budget deficit of P7.2 billion, revised from an initial P6 billion as indicated in the Budget Strategy Paper ( BSP).
Mandlebe added that mobilisation of other sources of revenue will continue including the issuance of Treasury Bills and Government Bonds as well as collecting taxes and fees as approved by parliament.
Presenting a statement at the signing of the Economic Resilience and Green Recovery Development Programme Loan Agreement, Minister of Finance and Economic Development, Peggy Serame explained that the loan agreement marks the culmination of a process that started after the 2020 Annual Meetings of the World Bank and IMF.
During the discussions held as part of those meetings, the World Bank and Government agreed to consider a budget support loan in order to meet financing needs arising from the challenges posed by the Covid- 19 pandemic.
Serame said worth noting is that the World Bank Group has extended financial assistance to Botswana since Independence, initially through the soft- lending window of the International Development Association.
This window is meant to assist lowincome countries by offering concessional financing loans. The second category of assistance received was the extension of Technical Advisory Services, and the third was Capacity Building by availing slots for attachments of young professionals.
And since the country graduated to middle- income status, the World Bank has extended project financing loans. Currently, outstanding loans include those for projects in Electricity, Health, Energy, Transport and Water Sectors, Botswana National HIV/ AIDS Prevention Support Project for US$ 50 million, Morupule B Generation and Transmission Project for US$ 42 million, Botswana Integrated Transport Project for US$ 186 million; and Botswana Emergency Water Security and Efficiency Project for US$ 146 million.
Serame said the Covid- 19 pandemic has resulted in reduced revenues for Government and increased pressures on expenditures due to immediate health and related needs, and more broadly the economic and social support measures put in place to assist vulnerable firms and households.
This has resulted in significant anticipated budget deficits in the medium term. She said to finance these deficits Government will secure funding through a combination of domestic borrowing through the issuance of Government securities, and external borrowing, mainly from the multilateral development banks.
She said the terms of the loan agreement are Front- end fee: 0.25 percent, which will be paid from the loan proceeds, Commitment fee: 0.25 percent on undisbursed balances, Interest rate: Variable reference rate of six months US$ LIBOR, which is currently at 0.16 percent, plus a variable spread - based on World Bank funding costs, which is currently at 0.52 percent. This then results in a total interest rate of 0.68 percent, Tenure: 10 years maturity period inclusive of three years grace period.
Serame said the government is looking forward to a quick disbursement of the budget support loan in order to support the Government’s continued efforts to save lives by funding the Covid- 19 related expenditures, especially the acquisition and roll- out of vaccines, while at the same time implementing projects and programmes to support the recovery of the domestic economy.
Further, the loan agreement comes at a time when there are positive signs of recovery in the economy. She said according to the Budget Strategy Paper prepared by the Finance Ministry, the economy is projected to grow by 9.7 percent in 2021.
This is expected to reverse the GDP loss experienced in 2020 when the economy contracted by 8.5 percent as a result of the pandemic. In the last few days, national accounts data released by Statistics Botswana for the second quarter of 2021 show that this projection is likely to be achieved.
In the second quarter of 2021, the economy was 36 percent larger than a year earlier. “This GDP growth of 36 percent puts us well on track to achieve the full- year target,” Serame said.
Furthermore, reflecting the strength of the ongoing economic recovery, Standard and Poor’s recently reviewed its credit rating for Botswana from negative to stable.