Bonds drive domestic govt debt up

Prior to the March bond issue, government domestic debt had been sitting at P1.75 billion since June last year.

The Minister of Finance and Development Planning, Baledzi Gaolathe, launched a P5 billion 'Domestic Note Programme' under which there will be regular auctions of government securities last March.

'The first auctions took place in March, totalling P1.3 billion through a combination of bonds (P1 billion) and treasury bills (P300 million),' said a central bank report. 

'Total domestic debt stood at P2, 200 million compared to P500 million at the time of the inaugural Government bond issue in March 2003.'

The programme will support the development of domestic capital markets and provide an alternative source of funding for investment by Government whose domestic debt reached a peak at P4.5 billion in the fiscal year 2004/05.

The issuance of the bonds in March was a direct response to calls from the market about the lack of a proper paper, which was not working in favour of the development of capital markets.

Commenting on the issuance of the bonds and its effect on domestic debt, an economist who asked to remain anonymous said while he appreciated Government's efforts to develop capital markets, there was a negative aspect to it.

'While government domestic debt can help the domestic private capital market, large domestic debt has certain risks which can have the opposite effect to what you want to achieve,' he warned.

'For instance, there can be 'sudden stops' in the demand for domestic debt as well as in foreign lending.

'Government needs to be aware of the risks and burdens in domestic debt issue, which includes crowding out small borrowers, transferring risks to banks when issuing longer maturity, fixed-interest domestic debt and reducing returns, and imposing risks on holders of pensions, annuities, and life insurance policies.'

Besides, the two bonds alone will not go a long way in meeting the demand for investment vehicles on the market, given the significant demand for pula-denominated assets.

In an earlier interview, central bank spokesman Chepete Chepete lamented the inadequacy of the issue in satisfying the market.

'The bonds alone may not meet the demand,' Chepete said. 'However, the continued build-up of outstanding bonds will, to some extent, meet this demand.

'By tapping the market regularly, a reference point for other potential issuers will be created and this will encourage other issuers to issue pula-denominated debt, thereby assisting in the objective of providing a range of pula-denominated assets to investors.'

The new bonds will also seek to reduce the cost of Bank of Botswana Certificates (BoBCs) and facilitate planning for Government's investment in large-scale development projects during NDP10.

The BoB report also said preliminary estimates for the government budget in the first three quarters of 2007/2008 (April to December 2007) show a budget surplus of P3 359.7 million.

'This compares to a surplus of P4 528.9 million during the same period in 2006/07,' the report said. 'Total government receipts stand at P20 813.0 million up from P18 268.0 million the previous year, an increase of 13.9 percent.  'However, total spending increased by 27.0 percent from P13 739.1 million to P17 453.3 million.'

Within overall spending, recurrent expenditure accounted for P13 291.4 million while development spending was P4 383.3 million, an increase of 68.8 percent.