Background Information

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.

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

Recent performance

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 6.6).

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.

However, despite continued healthy growth in the overall reserves, rapid growth of imports in recent years, together with asset transfers associated with the establishment of the Public Officers Pension Fund in 2002, have resulted in some decline in import cover from its peak in the early 2000s. More recently, from late 2008, the reserves have fallen due to outflows and asset revaluations arising from the global economic slowdown. Based on preliminary estimates of trade flows for 2009, as of December 2009 the reserves were sufficient to cover approxminately 19 months of imports of goods and services.