Since at least 2020 when government dug deeply into the reserves to finance the COVID-19 budget response, the central bank has been advocating for a portion of the savings to be set aside or “ringfenced”. The Pula Fund, which houses the country’s savings comprising decades of budget surpluses and diamond revenues, took a beating during the pandemic and has been gradually recovering since, as the economy has gathered momentum.
Government’s own savings, as housed in the Government Investment Account (GIA), managed by the Bank of Botswana, sank to P3 billion during COVID-19 before recovering to a peak of P18.6 billion last April helped by the strong diamond rebound in 2022. However, since then, the GIA has been sliding due to higher budget spending, reaching a post-COVID low of P5.2 billion in April 2024.
“Conversations are progressing between us and government,” the BoB’s financial markets department director, Lesego Moseki, told BusinessWeek in a recent briefing. “This is a project that requires extensive consultations and I think we have made progress between us and the Ministry (of Finance).”
Moseki revealed that the central bank had put out external feelers for best practices on ringfencing the reserves.
“We may also need external advice and that means the project may take some time before it’s finalised. “We have had a tentative discussion with the IMF because we need a legal framework and people who have done this before in other countries to help us.”
Moseki spoke a day after central bank’s executives, led by Governor Cornelius Dekop, met with President Mokgweetsi Masisi and his Cabinet to submit the 2023 Annual Report and conduct an economic briefing.
Writing in the annual report, BoB executives said a ring-fenced Pula Fund was essential for capital preservation and to enable organic growth through reinvestment of returns.
“In turn, the withdrawal rules would allow for a portion of the returns to be used to augment budget financing and this would increasingly become significant and impactful with sustained expansion of the Fund,” they stated.
The executives said while the Pula Fund was commonly referred to as a resource for future generations, it was primarily an ‘overflow’ or ‘residual’ account for surplus reserves, subject to short-term trade and capital account fluctuations.
“Given the recent developments in the balance of payments and government spending requirements, there is a risk of depletion of the foreign exchange reserves, thus impacting on maintenance of macroeconomic stability and policy discretion,” the executive said in the annual report.
Export earnings from diamond mining could be used for the creation of a ring-fenced sovereign wealth fund to “safeguard and organically grow the financial savings while using part of the returns to augment the annual government budget,” the executives said.
