Government’s bond programme, also known as the domestic note issuance programme, allows the BoB to raise debt from the local capital market on behalf of government, through the issuance of treasury bills and bonds.
The programme, which was increased from P30 billion to P55 billion in February, has become the main source of budget deficit financing for government in recent years. However, nearly all of the funding for the bond programmes comes from the local commercial banks, which are designated as primary dealers.
Bank of Botswana governor, Cornelius Dekop told BusinessWeek that while in the past, an entire year would pass without a single foreign investor in the programme, this year, this category of investor had participated three times. The central bank holds auctions of government treasury bills and bonds every month.
“Although it was a small amount versus local investors, it is promising because in other years, we would go the whole year without a single foreign investor, even for an amount like P10 million,” he said during a recent briefing.
Dekop added that the local capital market has matured over the years, giving foreign investors the confidence to raise capital locally and also participate in offers such as the government bond programme.
“When we started the bond issuance, the aim was to raise funds and establish a yield curve, which is now at a mature level. “This now means people can invest in the market. “Our stock exchange has also grown and is more liquid than 15 years ago, which also allows investors to come in. “International investors now have the appetite to come and raise Pula bonds here which shows we have a good thing going here,” he said.
The BoB’s financial markets director, Lesego Moseki, said the central bank had held tentative discussions with international settlement systems, a necessary step to attracting foreign investors.
“If you are trading a bond in other countries, you have to be sure of delivery and payment,” he told BusinessWeek. “When you pay for the bond, you should receive your money immediately and when you buy, you should get it. “These are the issues we have to traverse.”
Moseki revealed that the central bank also believes government should raise the quantum of the P55 billion programme in order to attract foreign investors.
“They agreed to raise it to P55 billion because other countries like South Africa, that P55 billion is what they can raise in three or found bonds. “We are in a very early stage of development,” he said.
Moseki said Botswana is invested in bonds in other countries that are using these funds for their own infrastructure.
“Countries like the United States, United Kingdom, Japan and others are where they are because we buy their bonds and they invest in infrastructure,” he said. “We need them to come here and buy our bonds so that we can also raise that funding for that. “Government needs to raise resources for development and impactful projects.”
In February, Finance Minister Peggy Serame told Parliament that in considering the increase in the bond programme 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. The higher ceilings would also have presented risks in the event of an unexpected negative shock to the economy.
