Gov’t adds billions to its 2022 debt pile
Government embarked on an aggressive debt drive this year piling on billions of pula more in borrowings from the local capital market and external financiers to plug the budget deficit and finance economic transformation.
Since the beginning of the financial year in April, the government raised P9.59 billion from the domestic capital market, with interest rates rising throughout the period. However, it was the forays into external, foreign currency-denominated debt that dominated headlines around government’s debt programme.
Botswana has earned a name tag over the years of being a “reluctant borrower,” and despite boasting one of Africa’s highest sovereign credit ratings, the country has traditionally avoided foreign currency debt and depended on its own reserves during difficult periods. Technocrats have previously taken the position that foreign currency-denominated loans could land the country in a precarious debt position, as its repayments are based largely on diamond mining, whose performance fluctuates from year-to-year.
This year, however, the Finance Ministry confirmed P2.8 billion in debt deals with the Japan International Cooperation Agency (JICA) and the OPEC Fund, with maturities of up to 17 years and four year grace periods.
Other deals announced this year include:
● African Development Bank, $179.7 million as the second tranche of a facility from 2021
● African Development Bank, $1.4 billion country strategy paper budget over two years also including technical assistance
● Afreximbank, $1.5 billion economic support package over three years
● World Bank, $150 million as the second tranche of a facility from 2021
● Africa 50, equity investment by Botswana which could yield funding arrangements from other development finance institutes
The deals come as President Mokgweetsi Masisi announced a change of tact in debt saying in his recent State of the Nation Address that the country was engaging different financiers to speed up the diversification of the economy from diamonds and help its industrialisation efforts.
For her part, Finance Minister, Peggy Serame has said the deals are essential to not only plug the forecast deficit for this year but to also support the economic transformation initiatives government has drawn up.
“There are still significant budget financing challenges with resultant budget deficits that need to be financed by borrowing,” Finance Minister, Peggy Serame told legislators recently.
“Previously budget deficits were largely financed by drawing down on savings that had been accumulated over the years, and hence are no longer available to finance spending.
“I should mention that given the magnitude of the deficits entailed in the budget approved by this House, several loans are required to bridge the financing gap,” she said.
The minister has also said the funding will be directed at the green transition, social protections for the most vulnerable, climate change mitigation and adaptation as well as support private-sector led industrialisation.
The raft of debt deals has raised alarm amongst local legislators, particularly as they were asked to approve the OPEC and JICA loans on a certificate of urgency. One of those concerned by the debt drive is Serame’s predecessor at the Finance Ministry, Thapelo Matsheka.
“Purely from a fiscal and consolidation discipline, we are at a crossroads because there are lot of things we need to do in order to avert what is seemingly going to become our way in the next four or five years,” he told Parliament recently.
“There’s something called intergenerational equity and if you look at the terms of the loan, there’s a four year grace period, which means you start paying in 2026 for 17 years.
“The people who are going to pay this loan are not us but the generation coming after us.
“If you don’t immediately start to deal with budget inefficiencies, you load a greater burden on future generations, who are also dealing with high unemployment,” he said.
Matsheka queried whether it was prudent to fund a deficit in one year by agreeing to a 17-year loan, adding that while the borrowing was within the fiscal limits, government had to make sure it protects future generations from high debt obligations.
Other legislators have raised concerns about corruption, the threat of foreign businesspeople benefiting more from the loans than Batswana and the terms of the facilities on offer.
As part of her responses to legislators, Serame defended the loans saying their maturities and purposes were sound.
“In 2005, we went to OPEC and borrowed money, not budget support, for the Middlepits to Bokspits road.
“That loan also had a 17-year tenure and a grace period of four years and I’m just showing that we are not doing anything strange. “We are responsible and we cannot come to you and put Batswana in unnecessary loans,” she said.
As at the end of September, domestic and external debt was measured at 21.5 percent of Gross Domestic Product, still within the 40% limit.