The foreign exchange reserves are assets held by the Bank of Botswana in foreign currencies. The reserves are accumulated mainly through surpluses on the balance of payments together with increases to the value of existing foreign currency investments. It is important for Botswana to maintain adequate foreign exchange reserves to be able to meet the demand for foreign currency to pay for imports of goods and services on an ongoing basis, as well as meet other international payment obligations, including the costs of servicing international debt.
Adequate reserves are furthermore required to support a managed exchange rate, as with the crawling peg that is the basis for the exchange rate policy in Botswana. The level of reserves fluctuates on a daily basis due to the Bank’s foreign currency transactions (purchases and sales) with both the Botswana Government and the domestic banks.
Reserve management guidelines
The value of the reserves in both domestic and foreign currency terms (US dollar and SDR) is reported regularly in the Bank’s monthly financial statements as well as in the Botswana Financial Statistics (Tables 3.4 and 6.7).
By international standards, Botswana has accumulated significant reserves when measured relative to the total imports of goods and services by a country. This is due to a combination of a sustained period of balance of payments surpluses and prudent investment guidelines.
Despite continued healthy growth in the overall reserves, rapid growth of imports together with asset transfers associated with the establishment of the Public Officers Pension Fund in 2002, resulted in some decline in import cover from its peak in the early 2000s. From late 2008, the reserves have fallen due to outflows and asset revaluations arising from the global economic slowdown. However, strong growth in exports and receipt from the Southern African Customs Union, together with slower growth in imports has led to renewed growth in the reserves in recent years.
As at the end of 2014, the reserves had increased by 16.7 percent from P67.8 billion recorded a year earlier, due to net foreign exchange inflows and the depreciation of the Pula against major international currencies. The reserves were sufficient to cover approximately 18.5 months of imports of goods and services. As of April 2015, the reserves were P89.4 billion, the equivalent of 20 months of import cover.