AFDB mulls floating Pula bonds
Brian Benza | Wednesday May 27, 2015 18:00
In the Botswana 2015-2019 Country Strategy Paper (CSP) released last week, the development bank said it would explore the possibility of issuing Pula-denominated bonds to support deepening of the financial market.
“This would help to somewhat address the needs of institutional investors who are not only looking for more Pula assets but also longer dated investments.
“Preliminary discussions with institutional investors have indicated that they would welcome a potential issuance by the Bank,” read the CSP.
Fund managers and insurance have often called for the deepening of Botswana’s capital markets where illiquidity and the absence of longer dated paper has resulted in funds being invested offshore.
In a recent annual report, the country's top life insurer, Botswana Life Insurance Limited (BLIL), warned that the insurance industry players could soon be forced to stop underwriting life annuity business due to a dire shortage of Pula matching longer dated investment instruments on the capital market.
In the period, 2015-2019, the AFDB says it would draw on a mix of financing instruments, including budget support, to provide longer- term financing predictability for Botswana.
“The Bank will creatively use its range of financial products to meet the country’s critical needs without exerting a significant impact on the country’s debt ceiling. The use of credit enhancement products including guarantees and guarantee syndication, and of loan syndication products, which can mobilise private sector capital, will be explored when considering commercial co-financing options. Long-term local currency financing and long-term fixed interest rates, for example, can help mitigate significant market risks for long-life infrastructure assets,” stated the bank.
The CSP was drafted following the bank’s high-level dialogue mission to Botswana from 15 to 17 February 2015.
On economic development, the Bank said that the structure of the economy has changed very little since the 1990s and growth has not been sufficiently inclusive.
According to the CSP, both poverty and inequality remain high for a middle-income country such as Botswana as the benefits of rapid growth have not been spread evenly across the population.
The Bank therefore urged a rethinking of Botswana ‘s development strategy to promote inclusive growth, as the economy seems to have reached a critical juncture.
The Abidjan -based AFDB says there is a need to accelerate the transformation from primary sector-driven economy to advanced manufacturing and services, as the country is highly vulnerable to global shocks as evidenced by the 2009 financial crisis.
In 2009, Botswana borrowed $1.5 billion from the AFDB for budgetary support after diamond revenues were adversely affected by the financial crisis.
Its Botswana portfolio comprised six operations as at January 31, 2015. Agriculture accounted for 94.7 percent of the total portfolio, followed by multi-sector (3.9 percent) and social sector (1.4 percent). Cooperation between the AFDB and Botswana dates back to 1972. As of October 2012, the Bank had financed 50 operations (41 loan projects, seven institutional support operations, and two studies) valued at approximately US $2.1 billion.
Apart from the $1.5 loan, the AFDB has helped fund the construction of the Morupule B power station’s transmission line and Pandamatenga agricultural projects.