Botswana: Financial Sector Assessment Program-Technical Note on Systemic Liquidity Management

International Monetary Fund

No 2024/060, IMF Staff Country Reports from International Monetary Fund

Abstract: This paper presents a technical note on Systemic Liquidity Management in Botswana. 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. The BoB’s liquidity regulations could more effectively facilitate banks’ ability to manage liquidity internally. Although banks maintain liquid assets above the regulatory minimum, these may be insufficient to withstand a high funding liquidity risk. Further support for an effective framework for banks’ liquidity management can emanate from streamlining the BoB’s collateral framework for refinancing facilities. The absence of a framework for emergency liquidity assistance leaves a gap for managing systemic liquidity shocks and should be addressed as a priority. Promoting the development of interbank repo market and government securities market helps to increase financial sector resilience. 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.

Keywords: B. liquidity management framework; B. emergency liquidity; risk control measure; liquidity vulnerability; liquidity risk; Liquidity risk; Liquidity; Liquidity requirements; Collateral; Commercial banks (search for similar items in EconPapers)
Pages: 33
Date: 2024-03-05
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