Government has been encouraged to borrow from the local capitals markets through issuance of bonds in order to finance its financial obligations.
Speaking this week during the Bond Market conference organized by the Botswana Bond Market Association (BBMA), Deputy Director – Financial markets Department at Bank of Botswana, Moemedi Phetwe said figures show that government is gradually substituting external borrowing with local borrowing.
At the present, government debt is reported o be around P25 billion, with over majority of it being external debt.
“And 80 percent of this external debt is basically a loan from African Development Bank,” said Phetwe, noting that government borrowed more during the 2008/2009 period when the world fell into a financial crisis and this was mostly support loans.
Phetwe has, however, cautioned that there are risks associated with excessively external debt, and key among them he said government will be vulnerable to volatile and increasing costs of servicing such debt.
“There is also a risk of default, which if it happens will have negative implications for both monetary and financial stability. The depreciation of the Pula against the Dollar may see the cost of the debt rising,” explained Phetwe.
Phetwe stressed the need to develop the Pula debt market since the country is no longer eligible to borrow soft terms from the multinationals development institutions.
“But the good news is that government has recognized this risk, and therefore in the Medium-Term Debt Management Strategy of 2016 – 2019, government has to limit the share of external debt to total debt,” said Phetwe.
In the same strategy, Phetwe revealed government is also to develop the domestic capital markets.