Parly asked to approve $211m in loans

AfDB approves extra $180m

Debt still below fiscal limit – Serame Ex-Finance Minister raises concerns

The Finance Ministry this week sought to push through legislative approvals for $211 million (P2.8 billion) in loans from the Japan International Cooperation Agency ( JICA) and the OPEC Fund, debt which authorities say is required to plug the budget deficit and fund transformation going forward.

The African Development Bank (AfDB) separately says its board has approved a $179.7 million (P2.3 billion) loan to help Botswana “restore post-pandemic fiscal stability and economic recovery”. While the Af DB loan is the second tranche of a facility that disbursed $137 million last year, the JICA and OPEC Fund facilities are new direct budget support for Botswana.

All three loans will be broadly used to strengthen social protections, enhance private sector development and promote the green transition, documents provided by the Finance Ministry and the Af DB indicate.

Botswana faces a P7.7 billion budget deficit this year and has opted not to draw down on the government reserves, which are usually used as a fiscal buffer. The reserves, funded by diamond revenues, are gradually recovering after reaching record lows in 2020 as government financed the COVID-19 pandemic response.

“There are still significant budget financing challenges with resultant budget deficits that need to be financed by borrowing,” Finance Minister, Peggy Serame told legislators on Tuesday.

“Previously budget deficits were largely financed by drawing down on savings that had been accumulated over the years, and hence are no longer available to finance spending.

“I should mention that given the magnitude of the deficits entailed in the budget approved by this House, several loans are required to bridge the financing gap.”

According to the terms of the loans, the JICA facility carries a 15-year tenure, while the OPEC Fund loan has a 17-year repayment period. Both loans have four-year grace periods. The terms of the AfDB loan have not been publicised. The OPEC loans will be anchored 155 basis points above the Secured Overnight Facility Rate, which was trending at 3.81 percent on Wednesday. The JICA facility, meanwhile, has a fixed interest rate of 0.01 percent per annum on the principal disbursed and outstanding for each interest Period.

“This is far below the interest rate that government typically pays on both domestic and external borrowing, and hence represents an opportunity to reduce the average cost of public debt,” Serame added, referring to the JICA loan.

The minister stressed that even with the additional loans, external debt would remain below 20% of GDP, in line with a fiscal rule set by the Finance Ministry. Currently, Botswana’s external debt to GDP stands at 9.81 percent, while domestic debt is at 11.66% of GDP.

While Parliament passed both the JICA and the OPEC loans, debate in Parliament indicated resistance from legislators, including Serame’s predecessor at the Finance Ministry, Thapelo Matsheka. “Purely from a fiscal and consolidation discipline, we are at a crossroads because there are lot of things we need to do in order to avert what is seemingly going to become our way in the next four or five years,” he said.

“It would be better that we move away from budget support loans because we continue to fund a budget that has significant amount of excess fat because of inefficiencies that are there.

“There’s something called ‘intergenerational equity’ and if you look at the terms of the loan, there’s a fouryear grace period, which means you start paying in 2026 for 17 years.

“The people who are going to pay this loan are not us but the generation

coming after us. “If you don’t immediately start to deal with efficiencies, you load a greater burden on future generations, who are also dealing with high unemployment.” Matsheka queried whether it was prudent to fund budget for one year by agreeing to a 17-year loan, adding that while the borrowing was within the fiscal limits, government had to make sure it protects future generations from high debt obligations.Other legislators raised concerns about corruption, the threat of foreign businesspeople benefiting more from the loans than Batswana and the terms of the facilities on offer.

As part of her responses to legislators, Serame said budget support loans ensured that loans could broadly be directed to projects approved by Parliament, as opposed to loans secured for specific projects. In an apparent response to her predecessor, the minister said the loan maturity and its purposes were sound.

“In 2005, we went to OPEC and borrowed money, not budget support, for the Middlepits to Bokspits road. “That loan also had a 17-year tenure and a grace period of four years and I’m just showing that we are not doing anything strange.

“We are responsible and we cannot come to you and put Batswana in unnecessary loans,” she said.

Botswana, which has one of Africa’s highest sovereign credit ratings, has traditionally avoided foreign currency debt and depended on its own reserves during difficult periods. However, in his recent State of the Nation Address, President Mokgweetsi Masisi said the country was engaging different financiers to speed up the diversification of the economy from diamonds and help its industrialisation efforts.