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BoB concerned over sluggish growth of domestic money and capital markets

Kabelo Adamson
CONCERNED: Governor Moses Pelaelo

The central bank Governor, Moses Pelaelo, says the development of money and capital markets in Botswana needs to be improved.

Speaking this week during the launch of the 2020 Monetary Policy Statement, the Bank of Botswana (BoB) Governor said as of 2017, the combined financial index for Botswana was two thirds that of Namibia, and a third and a quarter, respectively for that of South Africa and Singapore.

He said this is one area that should be attended quickly in the transformation agenda.

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Within such composite measures, the Governor says Botswana falls short of international norms by nearly every metric and compares unfavourably with peer upper-middle-income countries.

He gave a case of the nascent development of the interbank and stock exchange as an example.

According to the Governor, of particular concern is the scarcity of supply of high-quality corporate debt instruments, fragmented credit markets and low level of development of the government bond markets.

“This situation presents undue constraints and risks to long-term infrastructure financing, fiscal sustainability and, more broadly, a headwind to capital markets development,” explained Pelaelo.

He says in other countries a vibrant and highly liquid government securities market provides a source of funding for government spending, including local authorities and other public sector entities.

This option is said to be limited locally and the Governor believes its development offers a viable avenue for cost-effective domestic resource mobilization for long-term investment and funding government projects.

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Given the vulnerability of Botswana to trade shocks, climate change and prolonged droughts, Pelaelo says there is a need to maintain sufficient resilience to afford the fiscal space to undertake counter-cyclical stabilisation when necessary.

Meanwhile, the central bank in its annual Monetary Policy Statement released this week says the vulnerabilities to financial stability remain generally limited and contained.

The bank says the domestic financial system continues to be resilient as manifested by the current strong capital buffers and high levels of liquidity and healthy profit levels.

Furthermore, it says the vulnerabilities relating to potential for excessive and rapid credit growth, liquidity and funding risk, inflated asset valuations and inter-linkages between banks and non-bank financial institutions were contained and posed minimal risk to financial stability.

Banks are said to have maintained good quality assets in 2019, with a decline in credit default rates.

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During the year, the ratio of non-performing loans (NPLs) to total credit was 4.8 percent by the end of last year compared to 5.4 percent in December 2018.

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