Gov’t pushes limits with P2.4bn debt target

Mbongeni Mguni | Monday January 30, 2023 06:00

Balancing the books: Finance Minister, Peggy Serame, during the signing of the Africa50 equity purchase last month. The minister is due to present the budget speech on February 6 outlining the health of government’s finances PIC: MBONGENI MGUNI

The auction of three treasury bills and two bonds by the Bank of Botswana (BoB) falls under the P30 billion domestic borrowing programme approved by Parliament in September 2020 and designed to plug budget gaps while improving the capital market’s depth.

However, since its approval by Parliament, the domestic borrowing programme has underperformed, with the dealers demanding returns or yields higher than the BoB and government have been willing to accept.

As government’s banker, the BoB conducts monthly auctions of treasury bills as well as bonds to primary dealers who are exclusively banks. At the auctions, the dealers compete to lend to the government by offering the yields they are seeking, with the BoB deciding the 'stop-out' yield or the maximum level of interest it is willing to pay the dealers on particular securities on offer.

Today, the central bank will offer the market one treasury bill for P1 billion and two for P500 million each with maturities ranging from one year to 182 and 91 days. The bonds both offer P200 million and are reopenings of the existing 2027 and 2043-maturing bonds.

Market watchers are keen to see the response to government’s strong return to debt auctions, after the BoB only raised P200 million of the total P1 billion on offer at the last auction held on December 30.

Bidders at the December auction raised their yield demands, with the highest bid received on the three-month treasury bill increasing by 33 basis points and that on the six month rising by 139 basis points. At that auction, government’s borrowing costs were largely flat, as the central bank resisted the market’s push for higher yields.

Since the beginning of the 2022-23 financial year, the BoB has raised P9.8 billion for government from auctions offering P15.5 billion, while over the same period in 2021-22, P10.9 billion was raised off the offer of P15.2 billion.

The costs of borrowing have risen over the two periods, as the market has demanded better yields for the funds it is lending government, citing both the sovereign credit ratings’ downgrade by Moody’s in April 2021 and competitive yields in rival markets such as South Africa.