July 14, 2020 / 5:54 PM / a month ago

Botswana central bank seeks law to preserve shrinking sovereign wealth fund

* Fund being tapped by govt to meet budget deficits

* Diamond mining forms main source of fund reserve

* Diamond revenues to fall in 2020 due to coronavirus

By Brian Benza

Gaborone, BOTSWANA July 14 (Reuters) - The Bank of Botswana will seek legislation to limit access to its sovereign wealth fund, a central bank official said on Tuesday, as it seeks to stem a steady fall in the fund's reserves often tapped to meet budget deficits.

"At the moment the fund doesn't work strictly like a sovereign wealth fund as it does not have rules that guide withdrawals and replenishments," Caster Moseki, acting director of financial markets at the bank, said of the Pula Fund.

He did not disclose details on when the bank would approach the government for the requested legislation.

Plans to limit a regular dip into the Pula Fund, which has reserves equivalent to 7% of GDP, comes at a time when Botswana's diamond revenues - the main source of the fund - are likely to fall sharply due to the impact of the coronavirus.

De Beers, controlled by Anglo American Plc, which sells the bulk of Botswana's diamond production, has been unable to hold sales since March due to the pandemic.

Declining diamond revenues are expected to widen Botswana's balance of payments deficit that stood at 12 billion Pula ($1.03 billion) in 2019, raising fears of further withdrawals from the sovereign wealth fund this year.

Instead of drawing down on savings, Moseki said the government could look to fund expenditures from the domestic capital market which is awash with cash.

Botswana, a southern African country of 2.2 million, has over the years channelled excess diamond revenues into the Pula Fund, managed by the central bank. But recurring budget deficits in recent years has forced the government to tap into the fund to support its spending.

The soverign wealth fund, most of it invested overseas, has declined from 20% of GDP in 2011 to around 7% of GDP in May 2020, or around 15 billion pula.

$1 = 11.6279 pulas Reporting by Brian Benza Editing by Promit Mukherjee

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