Non-Bank Financial Institutions Regulatory Authority NBFIRA released a report that indicates that the macroeconomic environment and the financial sector are assessed to be broadly stable and prospects for the financial sector.
According to the report, global economic prospects are projected to moderate due to trade and geopolitical tensions, as well as policy uncertainty, with modest adverse impact on the domestic economy. Weak regional performance and adverse weather conditions also add up to dampened domestic growth momentum. The global response to weaker growth and subdued inflation imply maintenance of low interest rates and further loosening of monetary policy, led by major central banks, with potential for capital flows to the deeper, more liquid and stable emerging markets.
The external sector vulnerabilities such as trade shocks, capital outflows and adverse exchange rate movements, which could present the greatest potential for elevated financial stability risks, were balanced with respect to Botswana. Other vulnerabilities, such as potential for excessive credit growth and leverage, maturity mismatches, liquidity management challenges and macro-financial linkages between banks and non-bank financial institutions, were generally contained and posed minimal risk to financial stability. Nevertheless, excessive maturity mismatches and occasional structural excess liquidity continue to constrain orderly management of market liquidity.
The rate of increase in credit growth remains aligned to prospects for output and income growth, but continues to be heavily skewed towards the household sector. The financial health of the corporate sector remains good, albeit with isolated high profile closures and threats to business sustainability. Credit to the corporate sector relative to the size of the economy remains low by international standards. The real estate market continues to perform satisfactorily despite a similarly low sectoral credit to GDP ratio. Lack of organised housing market and publicly available property price index constrain price discovery and activity in the mortgage market.
The deposit structure and concentration of funds remains skewed towards the business sector, institutional investors and large depositors. There are no immediate concerns, but there can be occasional liquidity management challenges, particularly for individual’s banks, with potential to constrain policy transmission. A less diversified and predominantly short-term base for deposits as well as volatile funds also detract from long-term business, project and infrastructure funding.
Governance and accountability issues for some non-bank financial institutions that arose in the last two years are being addressed through regulatory and supervisory responses, as well as on-going investigations and prosecutions, as necessary. Therefore, risks of loss of funds and financial instability emanating from the subsector remain low.
Even then, the respective regulators will continue to enforce and enhance measures that are aimed at improving professional and ethical conduct by both individuals and firms in the financial services industry by; promoting governance frameworks that will guide appropriate behaviour within financial institutions, strengthening individual fiduciary responsibility and accountability including strict application of the fit and proper requirements and introducing responsibility mapping to ensure that individuals held accountable for their actions , addressing the ‘’rolling bad apples’’ phenomenon, which relates to individuals accused of financial misconduct in one institution ending up at another financial institution without disclosure of previous misconduct.
Therefore, financial institutions are being encouraged to introduce and maintain, for industry reference, a list of staff members terminated or released from duty on the basis of being found to have committed acts of impropriety, dishonesty and other forms of serious misconduct. The regulators also routinely reassess the fitness and propriety of employees in functions deemed capable of causing significant harm to the financial institution or its customers and encouraging private sector responses to misconduct in the financial system.
While Botswana remains on the Financial Action Task Force FATF list of jurisdictions with strategic anti-money laundering/combating the financing of terrorism deficiencies, the authorities continue to implement the required action plans to address identified deficiencies. Therefore, the associated vulnerabilities in this regard are expected to recede going forward. The payments infrastructure remains stable with orderly accommodation of new payment platforms and methods, in particular following the promulgation of the Electronic Payments Regulations.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”