Gov&#8217;t Bid To Raise P750m Flops

The central bank failed to raise any funds from the P750 million targeted in the recent auction of inflation-linked bonds, marking a weak debut for the issuance. Market analysts attribute the outcome to three key factors: timing, liquidity constraints, and unattractive yields. The Bank of Botswana (BoB) auction took place shortly after a conventional bond issuance, limiting demand, and was also under-allocated. Additionally, tight liquidity conditions may have discouraged participation. The market has remained in a net short position since November 2023, making the timing of the auction less than ideal. Bankers note that the limited liquidity available is being directed toward higher-yielding instruments, particularly those offered by commercial banks seeking to shore up their liquidity positions. Some analysts believe the inflation-linked bond could have performed better had it been issued during a period of ample market liquidity. Former BoB Deputy Governor Dr. Keith Jefferis argued that such instruments could help ease financing pressures, given the unmet demand from pension funds. However, bankers maintain that these bonds would have made more sense if issued in 2020 when inflation peaked due to COVID-related disruptions. With liquidity severely constrained, the government’s efforts to finance its budget deficit through the local market face growing challenges. While diversifying its funding instruments could make government securities more attractive, fund managers remain largely uninterested. Compounding the pressure, the government faces a P1.8 billion bond maturity this month, adding urgency to its funding strategy. The government plans to raise more than P1 billion annually through newly adopted cost recovery measures as part of efforts to address revenue challenges and curb excessive spending. The measures are outlined in the Botswana Economic Recovery Support Program Project Completion Report, released this week by the African Development Bank (AfDB) under the Economic Recovery and Structural Transformation Programme (ERSP) Phase I. The report reveals that Cabinet approved a series of cost recovery measures in June 2021, targeting six key ministries through new user fees and service charges. These ministries include Transport and Communications, Investment, Trade and Industry, Mineral Resources, Green Technology and Energy Security, Infrastructure and Housing Development, and Tertiary Education, Research, Science and Technology. The measures are expected to generate approximately P420 million annually. Under ERSP Phase II, five more ministries have been incorporated into the cost recovery framework, including Defence, Education, Employment and Skills Development, Health, and Foreign Affairs. A draft Cabinet memorandum for these additional ministries has been submitted to the Ministry of Finance, and Cabinet approval is expected in October 2024, the report states. Once implemented, these additional cost recovery measures will push total revenue generation beyond P1 billion annually. The report also highlights government efforts to enhance tax administration. The Tax Administration Bill, aimed at improving efficiency in tax collection, is currently under review by the Ministry of Finance after being drafted by the Attorney General’s Chambers. The bill will be submitted to Parliament alongside amendments to the Income Tax Act and VAT Act. The reforms seek to harmonise tax administration processes, close loopholes, and improve compliance. The report further notes that the Botswana Retirement Funds Bill, 2022, was approved by Parliament and assented to by President Mokgweetsi Masisi in December 2023. The bill introduces several key reforms, including the establishment of the National Pension Commission (NPC) as an independent regulator, improved governance and fiduciary standards for fund administrators, expansion of benefits for members, and enhanced transparency in fund management. While the bill has been approved, its implementation date is yet to be announced, as the NPC is still finalising regulations and operational details. The cost recovery measures, tax reforms, and pension system overhaul are part of broader efforts to stabilise Botswana’s economy, enhance revenue collection, and ensure sustainable public spending. With the implementation of these policies, government revenue streams are expected to grow significantly, providing much-needed fiscal space in an increasingly challenging economic environment.

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Gov’t Bid To Raise P750m Flops

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