Botswana Considers Issuing Debut Hard Currency Bond As External Buffers Shrink

Botswana’s foreign exchange reserves have dropped by around 41% in the past six years and the country is considering issuing its first-ever hard currency bond to shore up its external buffers, a central bank official said on Tuesday.
The diamond producing country’s foreign exchange reserves gradually fell to 47.5 billion pula ($4.34 billion)in April 2021 from over 80 billion pula in 2015, due to slower growth in exports – exacerbated by the COVID-19 pandemic – while imports remained high.
Botswana’s foreign exchange reserves are mostly held in a sovereign wealth fund, the Pula Fund and are used to pay for imports and external obligations while the government has often tapped into the fund to help cover budget deficits.

“We have proposed to government the options available to replenish our external buffers. One of them is to issue a hard currency bond and discussions have started but they are still at early stages,” the central bank’s director of financial markets, Lesego Moseki told a briefing on Tuesday.

The World Bank recently approved a $250 million loan to support Botswana’s economic recovery efforts while the government is also looking to its domestic borrowing programme to plug an estimated 6 billion pula deficit in the 2021 national budget.

But the domestic borrowing programme has underperformed in the past months. In a bond auction held in May, the government only managed to raise 53% of the 1.95 billion pula it was seeking as the central bank rejected the higher yields demanded by investors.
Moseki said the central bank was now in discussion with the government to allow yields to trend upwards while they were also looking at inviting foreign investors to participate on the domestic debt programme.
Currently only domestic commercial banks participate in the government bond and Treasury bill auctions.