The Bank of Botswana Annual Report for the year ended December 2016, which was released and shared with cabinet early this week on Tuesday has highlighted that the bank was successful in the implementation of its work programmes and, in general, achieved its policy objectives during 2016.
The Report provides a summary of the operational activities and audited financial statements of the Bank for the period ended December 31, 2016. According to an overview available on Bank of Botswana website, the report outlines the accountability framework for the Bank’s performance which include functions and responsibilities from conducting of monetary policy, maintaining financial stability, implementation of the exchange rate policy, the design and issuance of currency, management of foreign exchange reserves to regulation and supervision of banks, oversight of the payments systems and provision of banking and settlement services to Government, commercial banks and other financial institutions as well as economic research and policy advice.
According to Governor, Moses Pelaelo in his foreword, 2016 was of special significance to the Bank in several ways. “The banking industry remained sound, prudently managed, solvent, liquid and profitable. All licensed banks met the minimum prudential requirements as set out in the Banking Act and Banking Regulations. The industry’s profitability was due to the increase in both net interest income and non-interest income.”
Further, the report contains a theme topic titled Botswana’s Trade Pattern, International Investment and Regional Economic Integration: Opportunities for Industrial Development and Inclusive Growth. “The topic reviews Botswana’s external sector, in particular, trade and investment performance, related institutional and policy support, and suggests opportunities that should be exploited through trade and industrial policies to stimulate sustainable economic diversification, inclusive growth and job creation,” reads the statement signed by the recently appointed Pelaelo.
However, according to the statement, as in the previous year, the domestic and external environment was less favourable and uncertain. Global economic activity was weak in 2016 relative to 2015, with varying performance across countries and regions. In August 2016 the Bank rate was reduced by 0.5 % point to 5.5 percent due to a positive medium-term outlook for inflation and a stable financial environment which provided scope for monetary policy easing to support economic activity.
The monetary policy easing was undertaken moreover, to encourage productive commercial bank lending and market efficiency, as well as alleviate the cost of liquidity absorption. The 2016 report also states that due to projected low inflation in Botswana compared to trading partner countries, the nominal effective exchange rate (NEER) of the Pula crawled upwards by 0.38 percent during 2016, while the Pula basket weights were 50 percent each for the South African rand and the Special Drawing Rights (SDR). ”However, the real effective exchange rate (REER) depreciated by 0.8 percent in 2016, as the upward rate of crawl was smaller than the inflation differential between Botswana and its trading partner countries.”
The banking sector was adequately capitalized, profitable and liquid as at December 31, 2016. The industry’s compliance with the regulatory and prudential requirements was satisfactory. Most banks reported higher levels of profit compared to the previous year, with the exception of Standard Chartered Bank, First National Bank, Bank of India and Bank SBI.
According to the governor, the banking sector’s balance sheet increased by 5.2 % from P76.7 billion in December 2015 to P80.7 billion in December 2016. The 4.1 percent and 8.7 percent growth in total deposits and capital, respectively, supported the increase in government bonds, treasury bills and gross loans and advances. “Even so, annual credit growth slowed from 7.1 percent at the end of 2015 to 6.2 percent at the end of 2016 because of the slower rate of increase in lending to both households and businesses,” Pelaelo observed.
Notably the bank ‘s financial performance fell tremendously as the Bank’s total assets fell by P7.8 billion to P77.6 billion in December 2016, of which P76.8 billion (P84.9 billion in 2015) was foreign exchange reserves. “The reserves were equivalent to 17 months of imports of goods and services.
The decrease in foreign exchange reserves, in Pula terms, reacts a drawdown in the Government Investment Account, market and currency valuation losses, the latter being due to the appreciation of the Pula against currencies in which the reserves are held.” The Bank’s net income for the year 2016 also fell to P1.4 billion, compared to P9.1 billion in 2015, however 2016 saw the Bank register currency gains of P2.2 billion from the Currency Revaluation Reserve, the net distributable income was P3.6 billion, which was higher than the P2.3 billion given to Government in 2015.
The Bank of Botswana Governor states in the report that the focus on skills development, through appropriate short and long-term training programmes, and staff welfare improvement was maintained with a view to sustaining the Bank’s operational and leadership capability and productivity.
According to the statement, Botswana Certificates (BoBCs) decreased from P8.2 billion at the end of 2015 to P7.9 billion in December 2016. Repurchase Agreements (repos) and reverse repos were used during the year to manage liquidity in between BoBCs auctions, resulting in outstanding reverse repos of P1.3 billion at the end of 2016 compared to P1.7 billion in December 2015.
As in 2015, there were no outstanding repos at the end of 2016 The 14-day BoBC weighted average yield decreased from 0.97 percent in December 2015 to 0.84 percent in December 2016, while the yield on the 91-day BoBC decreased from 1.17 percent to 1.01 percent in the same period. The prime lending rate of the commercial banks decreased from 7.5 percent in 2015 to 7 percent in 2016 in line with the Bank’s decision to reduce the Bank Rate by 0.5 percentage points during the year. Meanwhile, the nominal 3-month (88-day) deposit interest rate decreased from 2.5 percent in December 2015 to 2.03 percent at the end of 2016.
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”