Serame tests appetite for hard currency bond

The possibility of government issuing its first ever foreign currency bond appears to be increasing, with Finance Minister, Peggy Serame this week due to sample international interest by holding a roadshow in Morocco, BusinessWeek has learnt.

Governments float foreign currency bonds in order to raise debt from global investors. Foreign currency bonds give governments protection against inflation and – for countries with high sovereign credit ratings such as Botswana – can represent lower borrowing costs. They can also be used to match currency inflows with outflows.

In a statement on Wednesday, the Finance ministry confirmed that Serame and her team would hold an investor roadshow on the sidelines of the International Monetary Fund and World Bank annual meetings taking place in Morocco.

The roadshow is strictly a ‘non-deal’ event meaning the ministry will not be committing itself to any arrangements or guaranteeing an upcoming issuance.

“The roadshow is an initiative to promote Botswana abroad and foster effective communication with prospective investors, especially as a marketable and investment-worthy destination,” ministry officials said.

The roadshow scheduled for Morocco confirms plans first publicly announced in June by Serame during the launch of the Bank of Botswana’s auction calendar and borrowing strategy.

At the time, Serame downplayed any commitment to issuing a foreign currency bond.

“It’s just about having a footprint in the global capital market so that in the future, if we decide to issue an international bond, then they already know who we are,” she told BusinessWeek.

Senior Finance ministry officials also told BusinessWeek the roadshow would be non-committal.

“It will probably be a ‘non-deal roadshow’ which is a way of getting the country known in the markets without committing to borrowing,” an official said at the time.

Any move towards a hard currency bond float will be carefully scrutinised by various stakeholders, including experts at the Bank of Botswana, as the country has generally shied away from taking on too much external debt. While Botswana enjoys one of Africa’s highest sovereign credit ratings, technocrats have traditionally been wary of the Original Sin, a term coined by economists to roughly describe a situation where countries find themselves stuck with high foreign debt obligations.

Analysts have said taking on foreign-denominated debt and exposing the country to currency fluctuations, would be challenging as the economy’s main sources of foreign currency, mining and tourism, are both prone to fluctuations in performance.

In its 2020 Annual Report, which covered the COVID-19 difficulties, the BoB mentioned foreign currency bonds as a funding option for government. Executives, however, spoke against the idea a year later.

“The cost of external debt has been rising over the years because the pula has been falling against the dollar over those years,” Moemedi Phetwe, the central bank’s deputy director of financial markets explained in June 2021.

“This is a case for improving the domestic market borrowings.”

Government’s P30 billion domestic borrowing programme has generally underperformed since its approval by Parliament in August 2020, with the BoB and Finance ministry largely resisting demands for higher yields by investors. While the programme is open to foreign investors, few, if any, have participated as they largely prefer the higher returns available in peer emerging markets such as South Africa. The latest developments come after government officially invited private capital to help finance the upcoming National Development Plan 12, saying its ability to keep funding public works is weakening.

Last July, government received positive signals at a funders’ conference called to test the pritite vate sector’s appetite to invest in public in- frastructure.