The Botswana Stock Exchange together with the Botswana Bond Market Association (BBMA) on Tuesday held the bond market conference media briefing, a precursor to the bond market conference which will be held on the 6th of October under the theme “The Bond Market- A pillar of the economy”.
Mr. Thapelo Tsheole, Chief Executive Officer of BSE, said the conference is organised by the BSE in conjunction with the BBMA in efforts to draw attention to a market which largely operates under the radar. The bond market has been eclipsed by the equity market and exchange traded funds, consequently the BSE and BBMA aim to propel the bond market to reach and exceed the levels of growth witnessed on the equity market. Mr. Tsheole highlighted that the bond market is relatively illiquid yet they appreciate the fact that it has grown modestly over the years.
“As at the end of 2015, the bond market accounted for 7.5% of Gross Domestic Product (GDP), a modest improvement from 7.2% in 2009. Liquidity amounted to 8.5% in 2015 compared to 5% in 2009. Currently, the total bond market capitalisation is close to a quarter of the total domestic equity market capitalisation. The number of issued bonds has risen phenomenally since the late 1990’s at which time there were only 3 bonds in comparison to 39 bonds listed on the BSE, by 15 different issuers, at present,” he said before adding that this year they are expecting historic issuances after attracting big names to the Botswana market.
In 2010, the BSE placed the bond market under scrutiny to try and understand the challenges facing the development of the bond market in the country. The study concluded with a report that underlined the Botswana Bond Market Development Strategy. The strategy was later to be driven by a committee put together by the BSE and relevant stakeholders, and part of the tasks was establishing the BBMA which was formally registered in September 2013. Mr. Tsheole said the BSE has since undertaken numerous initiatives contained in the Botswana bond Market Development Strategy such as formulation of standard bond pricing conventions bond pricing formulas in 2012 and the introduction of bond indices. Moreover, he said this year they have deliberately sought to promote the visibility of the BBMA by hosting the conference together.
“As most of you agree, bond markets are an integral part of the development of any economy. Therefore, the theme of this conference “the Bond Market- A Pillar of the Economy” is cognisant of the important role the domestic bond market has played in the development of Botswana, both in the public and private sector. Further, the theme and the agenda of the conference underscore the potential of the bond market to continue to support economic growth in a more robust manner,” he said.
According to the BSE, the primary objective of the conference is to bring together relevant stakeholders and participants in the bond market to engage in discussions on a wide range of topical issues covering the building blocks of a robust bond market, opportunities for infrastructure funding through the bond market, promoting an efficient regulatory environment, efficiency and liquidity of the secondary market, and developing the repo market. Furthermore, the conference will provide an opportunity to evaluate the status of the Botswana’s bond market and to make commitments to reforms and practices that can unlock the potential and the liquidity of the bond market. The conference is expected to forge relationships between domestic and international stakeholders in the bond market for purposes of capacity building, benchmarking and harmonization of debt market related developmental strategies.
Stanbic Bank Botswana, which is the main sponsor of the conference, said it was only natural for them as a bank to partner with the BSE and BBMA in the upcoming conference given the bank’s heavy presence in lead arranging and trading of bonds in the secondary market.
“We have done a lot as Stanbic Bank in Botswana and Standard Bank Group within the debt primary markets space in Sub-Saharan Africa and for us this is just really an extension of where we think we are significant and where we also believe our relevance actually lies. So it made absolute sense to create that connectivity with the Botswana Bond Market Association as well as with the BSE so that we can actually showcase our capabilities and cement our efforts,” said Mr. Sheperd Aisam, Stanbic Bank Botswana Head of Corporate and Investment Banking, who will also serve as one of the moderators at the conference.
Mr. Aisam says as diamond sponsors, they have been given a larger role at the conference and with their authority on the subject matter, they will share insights on where they think the bond market is going and where the market should go, while also moderating during sessions. The recently promoted Mr. Aisam said the theme for the conference could not have been better selected as they also have vested interest in the growth of the economy. He reiterated that the core mantra of Standard Bank is ensuring that Africa realises its potential hence the theme creates that alignment with their purpose.
Mr. Aisam said as Botswana celebrates its 50th independence, they should look back and reflect on what independence really means to them, citing that the country has done well to earn itself good stature in financial markets due to the conducive environment it has enabled for private businesses. He said such stature is reflected by the country’s strong foreign currency and equally strong sovereign credit. Mr. Aisam however warned that the country has not tapped in its full potential to propel its economic growth through various tools such as the bond market which can feed the healthy appetite for credit.
“The Bond Markets, in particular, have facilitated a lot of the basics in terms of monetary policy intervention; mopping excess liquidity, funding government deficits and providing a stable and long term source of funding for corporate and governments, bridging the gap where corporate institutions and lenders stop. Remember as corporate institutions we have got limited appetite for the long term space and limited appetite for complex infrastructure development just purely because our nature of funding is just that short,” he revealed.
Mr. Aisam lauded the BSE and other regulatory bodies such as Bank of Botswana for ensuring stability in the financial sector. He reserved his praises for the capital markets which he says have done well over the years and covered the basics really well, enabling and creating opportunities for the corporate issuances and government issuances and actually helping financial institutions grow the economy over the years.
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”