The Bank of Botswana (BOB) has no contingency planning and crisis preparedness system in place, and this presents a dangerous status quo – Specially Elected Member of Parliament (SEMP), Bogolo Kenewendo has observed.
Kenewendo who has been screening the national treasury and its operations lately wanted Finance Minister, Kenneth Matambo to share with lawmakers whether the bank has a contingency planning and crisis preparedness system, and if so what its highlights are. Kenewendo who is a shrewd Economist also requested the Minister of Finance & Economic Development to brief Members of Parliament on the Bank of Botswana’s Financial Stability Unit functionality and also state its current assessment of the financial system.
When responding to Kenewendo, Matambo indicated that the Bank of Botswana Financial Stability Unit was functional. According to the Minister it was established in 2010 with technical assistance from the International Monetary Fund (IMF). “The bank has since 2012 incorporated the macro-prudential assessments in its Monetary Policy technical analysis,” he said.
Matambo added that the BoB continues to refine the scope, institutional design, policies and macro-prudential tools for an effective financial stability assessment. Further lecturing legislators on operations and financial position of the county’s central bank Matambo who is also a SEMP highlighted that based on the banking sector performance indicators, which include levels of capital, liquidity, profitability and default ratios, financial system was assessed to be sound and stable. “In particular, the aggregate ratio of non-performing loans to total loans has been consistently low by international standards and stood at only 5.5 per cent in March 2017,” he revealed.
However on a low note, Minister Matambo told legislators that the BoB does not have a contingency planning and crisis preparedness system. Contingency plans are very critical for financial service providers especially those of magnitude and national importance as a central bank, they are devised for an outcome other than in the usual. A contingency plan is often used for risk management when an exceptional risk that, though unlikely, would have catastrophic consequences. Each financial sector participant has an independent responsibility for reducing the risk in its own operations.
This responsibility includes developing stable operating solutions, proper backup and preparedness procedures and systems and a robust financial infrastructure. Most banks’ system preparedness work is closely tied to its responsibility for promoting an efficient payment system and ensuring financial stability. This applies internally to, for instance, the central bank’s own systems, including settlement system as well as externally to financial sector infrastructure, including the power to authorize and oversee interbank systems.
Matambo told lawmakers that plans were underway to put a BoB contingency planning and crisis preparedness system in place based on the International Monetary Fund Technical Assistance Mission which was engaged to align the banking safety nets, bank resolution mechanisms and crisis management framework in Botswana with the best international practices. Matambo revealed that the International Monetary Fund Mission identified lack of legal power as an impediment to a well-functioning crisis resolution mechanism and has recommended amendments of the Bank of Botswana Act and the Banking Act. “I am happy to indicate that both of these Acts are currently being reviewed in order to address the identified deficiencies.”
Kenewendo said that the BoB needed to move with speed to put in place such system in order to be ready for any unforeseen circumstances, risks and crush within the financial banking spaces especially due to possible global economic shocks. Kenewendo said BOB can learn and use assistance also from World Bank Group to complement International Monetary Fund (IMF) support .The World Bank offers support to financial sector authorities to help deal with emerging problems in financial institutions and financial markets, and to mitigate the risk of systemic crisis. The Bank provides technical assistance to strengthen authorities’ contingency plans for dealing with distress, and to test the authorities’ preparedness through the use of simulation exercises.
Mitigating lack of data and information at local level On other issues, Bogolo Kenewendo also asked the Matambo to state his ministry’s efforts towards mitigating the challenge of lack of data and information that has been collected in a consistent and systematic way especially at local level which she says has been cited as one of the key challenges of monitoring and evaluation and also what new surveys should be expected from these efforts.
In response, Minister Matambo said efforts continue to be made to avail relevant and timely information in the required format and disaggregation for planning purposes at all levels. He said to this end, a key effort towards enhancing the availability of data and information at the local level was on the roll out by Statistics Botswana under the Botswana Strategy for the Development of Statistics. “The strategy seeks to promote data collection and production of statistical reports, following internationally approved methods and standards,” he said. Matambo also revealed that new surveys which will provide some of the data and information at the local level which were almost at roll out stage included the Botswana Demographic Survey, the Multi-Topic Survey, which survey includes labour, poverty, literacy, health and nutrition statistics and the Botswana Aids Impact Survey.
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”