Return of offshore pension billions draws closer
The Finance ministry is set to publish new pension prudential rules which will increase the minimum that can be invested locally to 50% from 30%, a figure that by July meant a homeward drift of P13.3 billion.
Director of Insurance and Pensions at the Ministry of Finance, Patrinah Masalela told BusinessWeek that while finalisation of the new rules was at an advanced stage, a phased approach would be used in which the minimum percentages to be invested locally would gradually increase towards the 50% threshold.
“We are not going to say right away all the pension funds must have brought that 50%,” she said on the sidelines of a recent briefing.
“All those movements in percentages, have been determined looking at what the monthly contributions are, the money out there already in the market and also looking at the avenues we can come up with to absorb the money.”
She added: “We are going to look at the whole matter in totality. We are looking and saying, for instance, at the Bank of Botswana, ‘why have people not been buying our instruments?’
“We look at that and once we align everything, the pension funds can have vehicles to invest their money in.”
The Bank of Botswana’s bond programme has met with lukewarm demand since it was doubled to P30 billion in September 2020, with the
local market pushing for higher returns that the central bank and the Finance ministry have been hesitant to accommodate. Nearly all monthly auctions since Parliament approved the increased debt ceiling have been under-allocated, although yields have increased over the period.
In the most recent auction of government bonds, the central bank raised just 69% of the P2 billion it was seeking, with nearly all of the
funds raised on the shorter end of the spectrum where yields have been rising fastest. More than half of the funds raised at the auction were from a single note, the six-month treasury bill, while just P60 million was raised from the P500 million on offer via bonds. Changes in the pension prudential rules have been on the cards for more than a decade, with an original proposal made by the Non-Bank Financial Institutions Regulatory
Authority in 2010 to shift to a minimum of 70% domestic investments over 20 years.
While government believes the amendments could increase investment in local infrastructure and foster the development of the capital market through innovation, fund managers have said the proposals will dent pensioners’ returns and increase risks by reducing the portfolio diversification the funds enjoy.
Masalela said even without being phased, the envisaged changes were not “out of reach or shocking” as pension funds already held an average of 38% of their assets locally, with some holding as much as 40%.
“A return is an objective, just as much as development is an objective and it’s up to us to balance that,” she told BusinessWeek.
“As a country, we cannot shelve our own development, talking only about a return.
“We have to balance these things.”
She added: “If we don’t develop our country who will develop it for us?
“(At the moment) we are taking this money to develop other people’s economies, but we are saying ‘let’s think for ourselves’ and this is one of the avenues.”
Masalela added that the pension prudential rules were regulations and not law, meaning if the new changes caused any catastrophe, the Finance minister could make corrections even overnight.
“We monitor these things on a daily basis,” she said.