- Govt in P3.3bn deficit Q2 2021
- Govt debt at P43bn
This was a stark difference of 11.4 percent compared to P58.8 billion in September 2020. This was revealed by Bank of Botswana (BoB) in its recently released Financial Stability Report (FSR) of October 2021 which provides an assessment of vulnerabilities to the stability and resilience of the Botswana financial system.
According to the FSR report, the decrease was due to drawdowns to finance the balance of payment deficit and other government obligations, such as external loan servicing and funding of embassies. “In foreign currency terms, the level of foreign exchange reserves decreased by 9.8 percent, from USD5.1 billion in September 2020 to USD4.6 billion in September 2021,” says the report.
“The reserves also decreased by 11.1 percent from SDR3.6 billion to SDR3.2 billion in the same period. The level of foreign exchange reserves in September 2021 was equivalent to 9.8 months of import cover of goods and services. The relatively low level of external balances has the potential to erode the country’s traditionally strong fiscal and external buffers in the medium term, thereby increasing fiscal risks.”
The overall BoP was in a deficit of P3.3 billion during the second quarter of 2021, compared to a deficit of P3 billion during the corresponding period in 2020. The deficit mainly resulted from an increased outflow of foreign exchange to meet import demand and government obligations such as external loan servicing and funding of embassies.
The report anticipates that the domestic economy will rebound despite declining fiscal and external buffers and it is projected to rebound to a growth rate of 9.7 percent in 2021, buoyed by the expected improvement in global business confidence and sentiments, leading to an improvement in demand for local diamonds, resumption of tourism and related services.
“In addition, the reduction in global supply chain disruptions, as well as the easing of measures to curb the spread of COVID-19 should result in increased domestic economic activity, especially with the implementation of the Economic Recovery and Transformation Plan (ERTP),” the FSR report says. Meanwhile, government debt and guarantees increased to P43 billion in September 2021 from P38.3 billion in September 2020, but, as a percent of GDP. was relatively unchanged at around 22 percent.
“Total domestic borrowing and guarantees amounted to P23.9 billion (12 percent of GDP) in September 2021, substantially below the statutory domestic borrowing limit of 20 percent. External debt is estimated at 10.1 percent of GDP in the same period, which is also below the 20 percent threshold for Botswana,” says the BoB report. It is expected that the fiscal impact of the COVID-19 pandemic will be felt until the 2022/2023 fiscal year.
The report is prepared by the Bank of Botswana in collaboration with the Ministry of Finance and Economic Development (MFED), the Non-Bank Financial Institutions Regulatory Authority (NBFIRA), the Financial Intelligence Agency (FIA) and the Botswana Stock Exchange Limited (BSE) and approved for publication by the Financial Stability Council (FSC), a multi-agency body launched in 2019 to collaborate and exchange information on financial stability issues affecting Botswana’s financial system.