Gov’t approaches local market for P1.8bn borrowings

Government, through the Bank of Botswana (BoB), returns to the market next week seeking P1.85 billion from the domestic lenders, the largest amount it has pursued since September 2011.

The higher offer of bonds and a treasury bill by government is in line with government’s stated plan to focus on domestic sources to fund its P10.8 billion deficit for the 2020/21 budget.

The government, through the BoB, borrows quarterly from the local capital market mainly to develop the local market’s capacity, but increasingly to fund gaps in the national budget.

Central bank documents made available this week indicate that a P500 million Treasury Bill and three bonds will be on offer at the May 29 auction. The bonds, which are all re-openings of previously issued paper, are BW012, BW013 and BW014 with maturities ranging from 2023 to 2040.

BW014 will offer P740 million, BW013 P336 million and BW012 P270 million.

Analysts told

BusinessWeek the upcoming auction was likely to see aggressive bidding by the primary dealers, who are exclusively commercial banks. “It is quite likely that banks, with higher liquidity and elbow room thanks to measures by the central bank, could plough some of that into the bond auction,” a capital market analyst told BusinessWeek.

“Government bonds offer risk-free returns for banks as opposed to lending to corporate and the retail sector at a time of coronavirus.

“Pension funds and other institutional investors are also having a tough time as global markets crumble and they will want to snap up more of the government paper, through the primary dealers.”

Other analysts said in times of market uncertainty, the government notes would represent a lifeline for investors, suggesting the May 29 auction would witness strong responses. Recent auctions of government paper in South Africa, Zambia

and

Tanzania have all been oversubscribed, largely for the same reasons.

In Botswana, the last auction of government notes in March, witnessed aggressive bidding with the bid to cover ratio for P300 million under BW013, reaching 2.47. The bond received 12 bids amounting to P740 million for the P300 million on offer.

Should the upcoming auction be fully allotted, only P295 million will remain under government’s P15 billion domestic note programme. BoB governor, Moses Pelaelo said a proposal to double the domestic borrowing programme to P30 billion had recently been handed to President Mokgweetsi Masisi.

Government generally has a conservative approach to debt, particularly from external sources, a position that has been influenced by the country’s lower need to borrow over the years due to strong diamond savings and a fear of falling into a debt trap.

For the 2020/21 deficit, finance and economic development minister, Thapelo Matsheka, has not ruled out seeking external funding of the deficit, but stressed that any approaches would be for development purposes and not recurrent spending.

The International Monetary Fund (IMF), meanwhile, has unveiled several products for emergency funding to help economies in the grip of the coronavirus crisis. By Tuesday, sub-Saharan African countries had taken up US$9.5 billion in direct credit, debt relief and other products from the IMF, with 50 other applications pending globally, including from South Africa and Zimbabwe.