Botswana’s foreign exchange reserves stood at P64 billion in September 2023, compared to P54.5 billion in the same period the year before.
The foreign exchange reserves reached pre-COVID-19 levels in July last year, recording P70.2 billion.
According to the Bank of Botswana (BoB) statement of Financial Position, this indicates that the Sovereign Wealth Fund – the Pula Fund increased to P48.3 billion growing from P42.4 billion year-on-year.
The Pula Fund accounts for the largest portion of the country’s foreign exchange reserves, while the other portion belongs to the Liquidity Portfolio, managed alongside the Pula Fund by the central bank.
In September, the last month such figures were availed, the Government Investment Account (GIA), which is the government share of funds in the foreign exchange reserves, stood at P12 billion, a decrease from P14 billion on a year-on-year basis.
Data from BoB indicates that in January last year, the GIA had accumulated P18 billion, an impressive increase from P9.5 billion y/y.
In the last three years, the GIA has significantly recovered from the P2.8 billion it had in December 2020, which was a substantial fall from the P18 billion it had accumulated by December of the previous year.
The decrease was mainly attributed to successive balance of payments deficits, COVID-19 effects, and volatile global financial markets.
The accumulation of foreign exchange reserves comes from surpluses in the balance of payments, which are generated from the export of rough diamonds.
However, subdued global demand for diamonds in recent years has limited further inflows into the Fund.
An economist at First National Bank Botswana (FNBB), Gomolemo Basele, recently told this publication that it is expected that the government will make drawdowns amounting to P1.6 billion from the GIA to finance a deficit (-1.6 percent of GDP) in the 2024 fiscal year, which covers the remainder of the transitional national development plan period.
This is to cover the expected cumulative deficit of P10.8 billion.
The balance, he said, will be financed through the issuance of government notes (P5.9 billion), and financing from multilateral and bilateral lenders (P3.5 billion).
When presenting the Budget Speech for the 2023/2024 financial year almost a year ago, Minister of Finance, Peggy Serame, said the GIA has shown some recovery over the past year, reaching P17.8 billion in October compared to P9.8 billion a year earlier.
However, Serame said it is important to note that part of the GIA is accounted for by Special Funds and Deposit Accounts, which have designated uses or are held on behalf of third parties and hence may not be automatically available for budgetary purposes.
According to the minister, low GIA levels limit the extent to which the government can draw on its reserves to finance future budget deficits, leaving borrowing as the main financing option. Notwithstanding the recovery in the GIA, Serame affirmed that it is evident that some worrying trends need to be addressed taking a long-term view of the country’s fiscal position.
“Back in 2008, the government’s net financial assets – broadly speaking equal to accumulated savings minus public debt – were equivalent to 40 percent of GDP,” she said at the time.
“By 2021, after many years of budget deficits, net financial assets were equivalent to minus 20 percent of GDP, as the GIA was substantially drawn down and borrowing increased.”
