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BOTSWANA COUNTRY DEBT PROFILE
UPDATED 2015
Economic and Social Analysis
In 1966, at independence after eighty years of British protectorate, Botswana was the third
poorest country of the world, suffering from one of the severest drought of its history.
Landlocked, heavily dependent on external aid, without industrial base or pre-colonial
manufacturing experience, non-existing infrastructure (12 kilometers of paved roads), low
educational attainments (22 college graduates), Botswana had one of the lowest GDP per
capita in the world1. However, since its independence, Botswana maintained one of the
world’s highest economic growths averaging 9.9% per annum up to 20042. The country’s is
also on record for the prudent management of its vast diamond resources, an area which
stands out in Africa as an exemplary case of harnessing natural resources effectively and
efficiently for development. Consequently, the mining sector has been the main driver of the
economy accounting for a large proportion of the country’s total output (approximately
20.3% as of end 2012). As the 2008/09 global crisis reduced demand for the country’s
diamonds, resulting in a 49.1% decline in the country’s mining output in 2009; real GDP
growth was also negative for the first time as shown in fig 1 below. In 2008, the government
for the first time in 17 years, requesting a loan from the African Development Bank. Improved
global demand in 2010 resulted in a rebound in the country’s mining production and positive
real GDP growth respectively. This resulted in a substantially reduced deficit in 2011/2012,
and a balanced budget and marginal surpluses for financial years 2012/13 and
2013/2014.
On the social front, the distribution of resources and level of development remain major
concerns. With a Gini coefficient of 0.60, Botswana portrays a relatively unequal distribution
of wealth. The incidence of poverty is also high, with 18.4% of the population living below the
poverty line. Other challenges include a high unemployment rate of 17.8%, and relatively low
Alberto Criscuolo. Briefing Note: Botswana. Page 1
Tregenna,F. Explaining Botswana’s Growth – with a comparison to Chile. Page 2
3 Africa Development Bank-Botswana Economic Outlook
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2
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Human Development Index (HDI) ranking and score mainly due to the high HIV/AIDS
prevalence of 23.4% that drags down life expectancy. The prevalence of HIV/AIDS is second
highest in the world and threatens Botswana's impressive economic gains. An expected leveling
off in diamond production within the next two decades overshadows long-term prospects. In
sub-Saharan Africa (SSA) Botswana scores well in terms of the level of human development
index (HDI), including the level of education and absolute poverty. However, the improvement
in the HDI has been very small over the last decade and Botswana also lags behind its peers
outside the region.
A major international diamond company signed a 10-year deal with Botswana in 2012 to
move its rough stone sorting and trading division from London to Gaborone by the end of
2013. The move may support Botswana's downstream diamond industry.
Fig 1: Real GDP Growth Rates, 2004 – 2012
Government Budget Balance (% of GDP)
GDP
Growth Rates (Annual%)
25
10
208
156
4
10
2
50
-2
0
2005 2006 2007 2008 2009 2010 2011 2012 2013
Government
Budget
GDP Growth
Rates
Balance
(%
of
(Annual%) GDP)
-4 2005 2006 2007 2008 2009 2010 2011 2012 2013
-5
-6
-10
-8
-15
-10
Source: Compiled by AFRODAD from World Bank Data
Debt Developments
As indicated above, due to the impressive performance of the diamond industry, which has
generally been the mainstay of the economy, Botswana is on record of having run substantial
budget surpluses since the 1980s. Consequently, unlike many other African countries that have
always relied on borrowing to finance their budget deficits among others, the Botswana
Government generally had no need to borrow that much to finance its public expenditure
programmes. Reflecting this position, by the end of 2005, a period when many Sub Saharan
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African countries were saddled with huge external debt burdens and were thus considering
debt relief under the HIPC/MDRI, Botswana’s external debt as a % of GDP was only 4.1%,
external debt service as a % of exports was only 8.1% and the national gross reserves
(months of imports cover) was approximately 23 months.4
However, as was the case with many countries, the Botswana economy was hit hard by the
global recession at the end of 2008, during which the demand for its minerals was drastically
reduced. Up to October 2008, diamond sales ranged between US$200million and
US$300million per month but by November 2008 the country hardly had any sales4. The
situation was also aggravated by the drop in the Southern Africa Customs Union (SACU)
revenue pool, related to the same global economic meltdown. This abrupt reduction in
revenues against the government’s expenditure plans resulted in a budget deficit of 6.2% of
GDP in 2008/094 as compared to a surplus of 5.7% of GDP during the previous fiscal year.
As shown in Figure 2 below, this deficit deepened further to reach 13.1% of GDP in
2009/10.
Figure 2: Government Budget Balance (% of GDP), 2005 – 2013
Government Budget Balance (% of GDP)
25
20
15
10
Government Budget
Balance (% of GDP)
5
0
-5
2005 2006 2007 2008 2009 2010 2011 2012 2013
-10
-15
Compiled by AFRODAD from World Bank Data
Faced with this mounting deficit, the government significantly increased its borrowings, in that
fiscal year respectively. Government and government guaranteed debt at the end of
2013/2014 was 30.9 billion (an increase of 4.8% compared to the amount outstanding at the
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end of 2012/13). Governments own debt amounts to P23.4billion while the difference is
government guaranteed. External obligations amounted to P22.3 billion while P8.6 billion of
internal debt included P7.6 billion in government securities with the balance consisting of
securities. Total debt is equivalent to 24.3% of GDP which is within the statutory ceiling of
40% of GDP.
External Debt Development
As shown in fig 3 below, the total outstanding external debt stock, which in nominal terms,
remained below Pula 3 billion between 2002/03 and 2008/09, increased significantly to
reach Pula 9.3billion as of end 2009/10 respectively. As a % of GDP, it also picked up from
3% in 2008/09 to 12.8% as of end 2009/10 respectively. One of the major drivers of this
huge annual increase was the US$1.5 billion Economic Diversification Support Loan (EDSL) that
the government acquired from the African Development Bank (ADB) to support the
implementation of its 2009/10 budget aimed at alleviating the negative impact of the global
financial and economic crisis in the country. External debt maintained this upward trend to Pula
14.6billion and 13.3% of GDP as of end March 2013 respectively.
16000
16.0
14000
14.0
12000
12.0
10000
10.0
8000
8.0
6000
6.0
4000
4.0
2000
2.0
0
0.0
Total Outstaning External Debt
% of GDP
Pula Million
Fig 3: Total Outstanding External Debt, 2002/03 – 2012/13
External Debt/GDP
Compiled by the author from the Bank of Botswana Annual Reports
External Debt Source by Creditor
4
Analysis of the country’s external debt profile by creditor shows that the government has three
main sources of external funds namely other governments (bilateral debt), multilateral
organisations and supplier credits. As shown in fig 4 below, out of these three sources, the
government borrows more from the multilaterals, followed by the bilateral loans from other
governments and then supplier credits respectively. China and Japan are the main sources
under the bilateral government sources. On the other hand, the African Development
Fund/Bank is the major source in the multilateral group.
Fig 4: Decomposition of External Debt By Creditor, %, 2002/03 – 2011/12
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Loans from Governments
Loans from Organisations
Supplier Credits and Other Loans
Source: Compiled from the Bank of Botswana, 2012 Annual Report
Domestic Debt Developments
As indicated above, the recurrence of substantial budget surpluses in the country also limited
the need for government domestic borrowing respectively. In this regard, with the exception of
the Bank of Botswana Certificates (BoBCs) issued by the central bank as a monetary policy
implementation tool, the market for domestic government bonds was historically dormant.
However, recognising that this could undermine broader capital market development, in March
2003, the Government initiated a limited series of bond issues in order to establish a risk-free
yield curve that would, in turn, facilitate wider bond issuance both by parastatals and the
private sector3. Nevertheless, as shown in Fig 5 below, the growth in the country’s total
domestic debt stock was reserved between 2004 and 2008, with the total stock actually
3
http://www.bankofbotswana.bw/index.php/content/2009103014034-government-bonds
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declining by 12% in nominal terms from P2500 million as of March 2004 to P2200 million as
of end March 2008. Beginning of the 2009 fiscal year, the Government however commenced
a new Note Programme that provided for the issuance of additional domestic government
debt. Though this programme was primarily aimed at supporting market development, it also
coincided with the period when the government budget was moving into substantial deficits
owing to the global economic crisis, thereby providing an alternative source of government
funding respectively. Consequently, the country’s stock of domestic debt increased by 64%
from P2200million (2.9% of GDP) as of end March 2008 to P3600million (5% of GDP) as of
end March 2009. It increased further by 68% to reach P6058million (5.8% of GDP) as of end
March 2011. The average annual increases in 2012 and 2013 were however very modest,
as shown in fig 5 below.
The Botswana Bond Market Association will begin formal implementation of its mandate in
2014 in collaboration with Botswana Stock Exchange to resolve structural issues impeding
bond market development, with a view to promoting efficiency and liquidity of the bond
market. A liquid bond market provides a conducive environment where the private sector can
raise capital for investment spending, and where investors can participate in economic
development by investing their savings in entities such as debt instruments. It is also pleasing to
note that investment by individual citizens in the banking sector through the stock exchange
increased from 3 percent of overall investment in 2008 to above 10 percent in 2013.
7000
70.0
6000
60.0
5000
50.0
4000
40.0
3000
30.0
2000
20.0
1000
10.0
%
Pula Million
Fig 5: Evolution of Total Domestic Debt, March 2003 to March 2013
0
0.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Total Domestic Debt
Total Domestic Debt as a % of Total Government Debt
Total Domestic Debt as a % of GDP
Source: Compiled from the Bank of Botswana, 2013 Annual Report
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Decomposition of Domestic Debt by Instrument
Covering 89% of the total outstanding domestic debt as of end March 2013, government
bonds have remained as the dominant instrument over treasury bills in the dual securities
portfolio, as shown in fig 6 below.
Fig 6: Decomposition of Domestic Debt by Instrument, March 2003 – March 2013
7000
6000
Pula Million
5000
4000
3000
2000
1000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Treasury Bills
Bonds
Compiled from the Bank of Botswana Annual Reports
Holders of Domestic Debt Instruments
In 2013 households had an opportunity to participate in the bond market which had a nominal
value of P9,4 billion at the end of 2013, representing more than 35 bonds, an increase from
a smaller number of bonds and a nominal value of P4 billion in 2006. Government securities
dominate the debt market which accounts 67% of the market share in 2013. Other
participants are parastatals with 16% and corporate entities at 17%. The direct involvement
of households in the bond market is negligible, however pension funds held 95% of the
government securities in 2013. The maturity profile of the listed bonds has improved in terms
of coverage of segments and length of term structure, but intermediate maturities (6-12 years)
still dominate. Ideally, a term structure that cover maturities of 7-15 years still match the needs
of most savers, including institutional investors.
Decomposition of Total Public Debt into External and Domestic Debt
Before the government initiated a limited series of bond issues in March 2003, the total
outstanding government debt as of end March 2002 was made of external debt only, as
shown in fig u below. As the government continued with its bond issuance programme, domestic
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debt increased significantly, reaching a high of 61.4% of the total the total outstanding public
debt in 2008/09. This dominance reduced in 2009/10 as a result of the high external debt
from the ADB, indicated above. Consequently, the proportion of domestic debt reduced to
35.2% while that of external debt increased to 64.8% from 38.6% in the previous fiscal year.
External debt has since then remained dominant in the total public debt portfolio, reaching
71.6% of the total outstanding debt as of March 2013 as shown in fig 7 below.
Fig 7: Decomposition of Total Public and Publicly Guaranteed Debt
% of Total Public Debt
120
100
80
60
40
20
0
External Debt as a proportion of Total Public Debt
Domestic Debt as a proportion of Total Public Debt
Source: Compiled from the 2011 and 2012 Bank of Botswana Annual reports
Public Debt Interest Payments
Regardless of the recent increases in the total public debt stock, interest payments on the total
debt stock have remained modest. As shown in fig 8 below, Interest on Public Debt as a % of
GDP remained below 1%, reaching 0.6% as of end March 2014. Furthermore, it is actually
projected to decline to 0.4% as of 2018. As a % of both Government Expenditure and
Government Revenue, total interest payments only reached a high of 3.9% and 3.8% in the
2012/13 fiscal year respectively. However, the ratios are both projected to decline to 1.3%
and 1.2% as of end 2016/17 respectively, as also depicted in fig 8 below. These
developments overally reflects low interest cost of the public debt stock and also that the level
of government indebtedness relative to the country’s economic activity is very low.
8
1800
4.5
1600
4
1400
3.5
1200
3
1000
2.5
800
2
600
1.5
400
1
200
0.5
Interest on Public Debt as a
% of GDP
Interest on Public Debt as a
% of Total Govt Expenditure
Interest on Public Debt as a
% of Total Govt Revenue
0
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
0
Interest on Public Debt
%
Millions of Pula
Fig 8: Evolution of Public Debt Interest Payments, 2006/07 – 2017/18
Source: Compiled from the Bank of Botswana 2012 Annual Report and
the IMF Botswana 2013 Article IV Consultation Report
Debt Sustainability
As of the end of the 2012/13 fiscal year, total government and government guaranteed debt
was at 23.2% of GDP (external: 16.6%; domestic 6.6%). As shown in fig 9 below, this was
below the statutory ceiling of 40% (external: 20%; domestic 20%)4 respectively.
% of GDP
Fig 9: Public Debt
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
11.7
16.4
17.9
16.6
3.3
3.0
3.0
2.6
3.0
2.9
3.1
5.0
6.3
7.0
7.6
6.6
2006
2007
2008
2009
2010
2011
2012
2013
Total Public Domestic Debt as a % of GDP
Total Public External Debt as a % of GDP
Statutory Ceiling
Compiled from the Bank of Botswana Data
4
Stock, Bonds and Treasury Bills Act of 2005, section 20, “Limitation on Borrowing”
9
Legal and Institutional Framework Governing Debt Acquisition
As indicated above, Botswana has a statutory ceiling on total public debt as indicated under
Limitation of Borrowing (Part IV of the Stock, Bonds and Treasury Bills Act of 2005) that:


The total domestic debt and government guaranteed debt shall not exceed 20 per
cent of the annual gross domestic product; and
The total foreign debt and government guaranteed debt shall not exceed 20 per cent
of the annual gross domestic product.
This is commendable and in line with the AFRODAD Borrowing Charter recommendation on the
need and importance of countries to have debt ceilings. However, there are some concerns
that these fiscal targets are fixed and not updated in relation to changing macroeconomic
conditions.
The need for a country to have a debt management strategy is also recommended in the
Borrowing Charter. In this regard, though there have been some indications in the past that the
country has started engaging development partners to develop a debt management strategy
to guide government financing needs, looking at prudent decisions on costs and risk, while
taking into account the country's overall macroeconomic framework and market constraints 5, it
is of concern that this proposed strategy is not yet in place.
Furthermore, the Borrowing Charter also stipulates that legislation for debt management
should be in the constitution, and should not be left to chance. In terms of public debt, Chapter
VIII, subsection 123of the Constitution only mentions that:
(1) There shall be charged on the Consolidated Fund all debt charges for which Botswana is
liable.
(2) For the purposes of this section debt charges include interest, sinking fund charges, the
repayment or amortization of debt, and all expenditure in connection with the raising of loans
on the security of the revenues or the Consolidated Fund of the former Protectorate of
Bechuanaland or Botswana, and the service and redemption of debt thereby created
No mention is made in the constitution of any legislation/legal framework to guide this public
debt acquisition and management respectively.
Nevertheless, the Stock, Bonds and Treasury Bills Act of 2005 gives the Minister of Finance the
power raise moneys in and outside Botswana on the best and most favourable terms
obtainable by the issue, whether public or otherwise, of stock or bonds. However, the Act does
not set clear criteria for decisions concerning contracting of loans and issue of guarantees, and
5
http://www.trademarksa.org/news/botswana-government-hammers-out-debt-strategy
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these are not provided by any financial regulations or internal guidelines6. Furthermore, a
Debt Management Strategy that could also provide such guidelines has not been issued.7
Conclusions and Recommendations
Though there have been indications since 2011 that the country has started engaging
development partners to develop a debt management strategy to guide its borrowing
respectively, it is of concern that the proposed debt strategy is not yet in place. It is
recommended that this strategy be put in place.
It is also notable that regardless of the increases in public debt since 2009, the country’s debt
indicators are still very sustainable. However, the continued increase in household borrowing
warrants close monitoring. There is need to use macro prudential tools to limit potential
vulnerabilities in the financial system.
6
Republic of Botswana. Public Expenditure and Financial Accountability Assessment. Final Report. August
2013. Page 87
7
Republic of Botswana. Public Expenditure and Financial Accountability Assessment. Final Report. August
2013. Page 87.
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ANNEX 1: SELECTED PUBLIC DEBT INDICATORS
Debt Variable
Units
2009
2010
2011
1Total
Pula or
US$
%
2263.5
9288.6
12572.7 13810
14603
3600
4457
6058
6329
6208
12.3
14.2
16.0
15.2
72316
93390
104573
10979
Public
External Debt
2External Public
Debt/Total
Public Debt
External
Debt/GDP
External
Debt/Exports
External
Debt/Govt
Revenue
External Debt
Service/Exports
External Debt
Service /Govt
Revenue
Total Public
Domestic Debt
Domestic Public
Debt/Total
Public Debt
2Domestic
Debt/GDP
Domestic
Debt/Govt
Revenue
Domestic Debt
Interest
Payments/Govt
Revenue
GDP(at current
market prices)
Govt Revenue
Exports
2012
2013
March
2014
%
%
%
%
%
DOMESTIC
DEBT
Pula
%
%
%
%
29254.3 31580.1 37953.2 41560.4
http://www.gov.bw/en/News/Public-debt-management-faces-admin-challenges-/
http://www.indexmundi.com/botswana/economy_profile.html
http://www.afdb.org/en/countries/southern-africa/botswana/botswana-economic-outlook/
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