BoB to formally approach govt on protecting Pula Fund
Mbongeni Mguni | Tuesday March 2, 2021 16:17
Set up in 1994 and managed by the BoB and global asset managers, the Pula Fund is designed to act as a fiscal buffer and nest egg for future generations who will live in an era without strong diamond revenues.
However, the government often dips into the Pula Fund to fund various needs such as the Economic Stimulus Plan and budget shortfalls, while frequent withdrawals are also made to support the country’s import bill. The Pula Fund is part of the foreign reserves, representing long term assets, while other components cater for short and medium-term needs.
However, the erosion of the Pula Fund and overall foreign exchange reserves has picked up pace in recent years due to declining exports and against rising imports, with the coronavirus (COVID-19) worsening the situation last year. The Pula Fund fell from P55.6 billion in November 2019 to P45.9 billion in November 2020, according to the latest BoB figures.
Last July, BoB executives told the cabinet that the Pula Fund should be managed in such a way that “future generations do not curse us for not managing them well”.
Last week, central bank governor, Moses Pelaelo told MmegiOnline the BoB was in the process of developing a formal policy submission to the government on ringfencing or protecting the Pula Fund from frequent withdrawals.
“The issue of ringfencing the Pula Fund and the withdrawal rules is an ongoing discussion,” he said at a briefing.
“Government will consider a formal submission from ourselves at the appropriate time as we look at the developments.
“Given what has happened in 2020, the conditions that existed at the time of making these suggestions have changed because of COVID-19’s impact on the economy.”
Pelaleo said the BoB has “always said and explained” that the external buffers are critical to the country’s economic fortunes.
“They are very important, especially in a country that is vulnerable to shocks such as drought and the dependence on one commodity for export earnings, as well as the narrow economic base,” he told MmegiOnline.
“In 2020, because of COVID-19, with export revenue declining, we saw these buffers negatively affected, as we had to rely on existing reserves to fund government obligations, leading to a decrease in import cover from 12 months to 10 months.
“This changes the question of ringfencing and we have to submit a formal policy recommendation to the government, which we are yet to do.”
The BoB previously said ringfencing the Pula Fund was essential for value to be extracted from its assets.
“It’s important to remain with sufficient value to be viable for future investment,” deputy governor, Kealeboga Masalila told MmegiOnline last year.
“You need a quantum of reserves that can generate reasonable future returns for reinvestment or current use.”