Gov’t dents Foreign Reserves
Reserves draw down amounts to fiscal imprudence - Keorapetse
Drawing down the reserves for expenditure in consumption activities amounts to fiscal recklessness or imprudence, this according to Member of Parliament for Selibe Phikwe West, Dithapelo Keorpetse.
Keorapetse who was responding to Minister of Finance and Economic Development Peggy Serame’s statement on the depleting Foreign Reserves, told Botswana Guardian in an interview that Reserves should be tapped strictly for investment in development and/ or value adding projects that would yield clear tangible economic dividends. What happened was that in this case, they financed populist decisions that had little economic value, he said.
Minister Serame told Parliament that foreign reserves have fallen in the past four years and there is need to rebuild. She said as at 31st December 2017, the value of the foreign exchange reserves was P73.7 billion, equivalent to USD 7.5 billion. She revealed that the amount of foreign exchange reserves as at 31st December 2021 was P56 billion or USD4.8 billion. The Minister further said while the foreign exchange reserves have fallen, especially in the advent of COVID- 19, they have and continue to serve the purpose for their maintenance; that is affording uninterrupted access to foreign exchange for sustained economic activity and consumption needs and, generally, for stabilization purposes and discretion in the conduct of macroeconomic policies.
However, according to Keorapetse, the reserves augmented monumental failure to collect revenue in the form of taxes or other ways and have financed wasteful expenditure. “The most important question is what has been done with this money. What productive economic activities have been funded through this process and what were the projected dividends? Was the spending a worthy investment? Couldn’t we have postponed that spending? Was it a priority? These questions haven’t been adequately answered by Minister Serame,” argued Keorapetse.
The MP explained that there is need for more transparency from the Minister as the country was left in a precarious position, even though we are above the continental ( AU) and regional ( SADC) target in terms of months of import cover worth of our reserves, emphasized Keorapetse. He added that unlike the Government Investment Account, it is not easy to liquidate what is in the Pula Fund quickly because it has been invested all over and earning interest.
“So, if COVID- 19 and it’s economic consequences continue or we are hit by another external shock, we are unlikely to survive because there isn’t much that can be done with the few billions left in the reserves,” he said.
Serame has stated that in general, it should be noted that changes in the level of foreign exchange reserves result from surpluses or deficits on the balance of payments which, in turn, are driven mainly by the level of foreign trade ( imports and exports). foreign exchange reserves are, by definition, assets or funds held by central banks denominated in foreign currency, used to finance international transactions, the Minister said.
She explained that such transactions include payments for goods and services ( imports) that
can be used for production, consumption and/ or supply of essential services, outward investment by residents in foreign markets and servicing of external obligations on behalf of Government, businesses and households.