Gov’t bond issuance ceiling raised to P55bn

Mbongeni Mguni | Monday March 25, 2024 10:20

New heights: Serame said the proposed new debt ceiling could have been as high as P70bn, but this would have violated the borrowing limits and placed the fiscus in significant jeopardy PIC: MORERI SEJAKGOMO

Government’s bond programme, also known as the domestic note issuance programme, allows the Bank of Botswana (BoB) to raise debt from the local capital market on behalf of government, through the issuance of treasury bills and bonds. In September 2020, Parliament increased this programme to P30 billion from P15 billion, acknowledging the effects of the COVID-19 pandemic on the budget.

On Tuesday, Finance Minister Peggy Serame said the P30 billion limit had been reached in February, necessitating the increase that would both fund budget deficits and help the development of the capital market.

“As I stated in the budget speech in February, the deficit for the 2024–2025 financial year will be financed through special funds proceeds and domestic borrowing through the issuance of new instruments,” Serame said.

The minister presented legislators with a record spending plan of P102 billion in her February budget speech, with a forecast deficit of about P8.7 billion for 2024–2025, the highest budget shortfall since the COVID year of 2020. At the time, Serame said the deficit would be funded via “moderate” drawdowns on government’s savings, as well as borrowings from the local capital market, including the issuance of new types of bonds.

However, yesterday, she said the current fiscal policy was to rebuild the government’s savings from their COVID-19 weakness and not make any withdrawals, hence the focus on expanding domestic borrowings through the new ceiling.

Serame said the higher ceiling would include new debt instruments.

“Under the expanded debt ceiling, government intends to introduce new instruments such as inflation-linked bonds,' Serame said.

The Bank of Botswana has previously recommended that government consider issuing a hard currency bond, while in her budget speech, Serame hinted at sustainable bond issuances this year.

The Finance minister said in considering the increase in the ceiling, government had the option to go as high as P65 billion or P70 billion but the latter two levels would have breached the 20% of GDP statutory domestic debt limit and would have presented risks in the event of an unexpected negative shock to the economy.

The P55 billion limit is within the domestic debt limit which currently stands at 11.05% of GDP.

“However, there are several risks associated with the bond ceiling increment, such as interest rate risk, refinancing risk as well as inflation risk,” Serame said.

The BoB, acting on behalf of government, raises debt by auctioning treasury bills and bonds in the capital market on a monthly basis. Government expects a strong response to the higher debt ceiling as changes to the Retirement Fund Act last year require pension funds to invest 50% of their assets domestically in the years to December 2027.

Local pension funds held P139 billion as at December, with 40.6% of this invested locally.