Botswana: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Management
IMF Staff Country Reports, March 5, 2024
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Bibliographic details
- Published: March 5, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400267604.002
Key findings
- The liquidity management framework of the Bank of Botswana (BoB) has been strengthened since the April 2022 monetary policy reforms; however, structural excess liquidity and its volatility persist.
- Banks maintain liquid assets above the regulatory minimum, but these liquid assets "may be insufficient to withstand a high funding liquidity risk."
- The existing interbank market is a fragmented unsecured market comprised of one-way lending from large banks to small banks, which is an important but insufficient shock absorber for liquidity risk.
- The absence of a framework for emergency liquidity assistance leaves a gap for managing systemic liquidity shocks and "should be addressed as a priority."
Liquidity framework and bank liquidity management
- BoB liquidity regulations could more effectively facilitate banks’ ability to manage liquidity internally.
- Structural excess liquidity and volatility in Botswana’s financial system remain key vulnerabilities despite post-April 2022 reforms.
- Current bank liquidity buffers exceed regulatory minima but face potential shortfalls under high funding liquidity stress.
Collateral framework and refinancing facilities
- Streamlining the BoB’s collateral framework for refinancing facilities is identified as a way to further support effective banks’ liquidity management.
- Improvements to collateral arrangements could enhance access to central bank liquidity and reduce reliance on fragmented unsecured interbank lending.
Emergency liquidity assistance (ELA)
- No framework for emergency liquidity assistance currently exists in Botswana.
- The lack of an ELA framework is a priority policy gap for managing systemic liquidity shocks and should be addressed urgently.
Interbank repo market and government securities market development
- Promoting development of an interbank repo market and a government securities market would help increase financial sector resilience.
- The current interbank market structure (fragmented, unsecured, one-way lending) limits its effectiveness as a liquidity shock absorber.
Policy recommendations (summarized)
- Strengthen BoB liquidity regulations to better facilitate banks’ internal liquidity management.
- Streamline the BoB collateral framework for refinancing facilities to improve access to central bank liquidity.
- Establish a formal framework for emergency liquidity assistance to fill the current policy gap for systemic shocks.
- Promote development of an interbank repo market and deepen the government securities market to enhance market-based liquidity management and shock absorption.
International Monetary Fund Staff Country Report: "Botswana: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Management", March 5, 2024
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- Executive Summary