.jpeg)
In August, Minister of Finance Peggy Serame revealed to parliament that the Government Investment Account (GIA) has been on a downward trajectory due to numerous economic shocks Botswana has incurred over the last 15 years.
Initially established in 1997, the GIA is currently at its worst level since its inception.
The image below presents a summary of Botswana's flow of funds:
What is the Government Investment Account?
The GIA represents the government’s share of funds in the Pula Fund, the country's Sovereign Wealth Fund (SWF), and the Liquidity Portfolio including its share of unrealised fair value and currency gains and losses. In short, it acts as the country's savings account.
The GIA receives the government’s surplus cash balances derived from budget revenues and borrowed funds from institutions like the IMF, net of spending and financing outflows.
According to Serame, the reduction in GIA has been due to the financing of the imbalance between low revenues and high expenditure commitments such as the COVID Relief Fund, Chema-Chema and support for parastatals like BPC and Air Botswana.
What is the Pula Fund?
The Pula Fund is a long-term investment portfolio established by the Bank of Botswana in 1994 to preserve part of the income from diamond exports for future generations, generate returns and maintain the purchasing power of reserves.
It is intended to maximise returns and is invested in foreign financial instruments with a long-term duration. These investments, which may be sold in response to needs for liquidity, are classified as available-for-sale.
The Fund is made up of two accounts, the Government Investment Account (GIA) which belongs to the Government and a foreign exchange reserve account that belongs to the Bank.
Foreign exchange reserves that are more than what is expected to be needed in the medium term are transferred to the Pula Fund and invested according to these investment guidelines. The Bank of Botswana reviews the Pula Fund’s asset mix every three to four years.
What is the Liquidity Portfolio?
The liquidity portfolio is a fund in which money market instruments and bonds are invested to facilitate payments for regular transactions. It is intended to cover imports for at least 6 months according to the Bank of Botswana's monetary policy. It is the primary international reserve.
In terms of the investment guidelines, liquidity takes precedence over return in the Liquidity Portfolio, given the recurring need to provide foreign exchange to finance international transaction payments. While the eligible investment currencies are similar to those of the Pula Fund, the Liquidity Portfolio is largely invested in shorter-dated assets.
The Liquidity Portfolio is subdivided into the Liquidity Investment Tranche (LIT) and the Transaction Balances Tranche (TBT), comprising highly liquid investments in the Bank’s international transaction currencies. The LIT is invested in government bonds, government-guaranteed bonds, supranational bonds of eligible investment-grade currencies and eligible money market instruments. During the financial year 2022, LIT was liquidated to fund the TBT as a result of drawdowns from the TBT to provide foreign currency to the economy and government for payments of goods and services.
