Gaborone, 12 December 2023 (ECA) – The United Nations Economic Commission for Africa (ECA) in collaboration with Bank of Botswana and Frontclear have launched a Money Market Diagnostic Framework (MMDF) to boost the country’s financial system.
The MMDF provides critical insights for the holistic development of the money and interbank market, while identifying impediments and making sequential recommendations. The framework was launched at a workshop organized by the ECA, Bank of Botswana and Frontclear.
The Bank of Botswana and Frontclear signed a Memorandum of Understanding (MOU), reflecting a shared commitment to developing the country’s money market, including a more participatory interbank market and secondary bond market.
Speaking at the launch, Kealeboga Masalila, Bank of Botswana Deputy Governor, noted that a stable and inclusive money market was a prerequisite to increasing depth in local currency bond markets.
Mr. Masalila acknowledged the role of interbank lending as the nucleus of the money market, where banks borrow and lend to each other using financial instruments such as repurchase agreements (repos) and hedge balance sheet risks through derivatives. The Bank of Botswana and banks are keen to develop the interbank market to deal with immediate liquidity concerns and to transmit changes in monetary policy.
As an emerging market, Botswana faces systemic challenges such as market segmentation and over-reliance on the banking sector as the only local source of liquidity. Besides, there are legal and regulatory challenges in enforcing global best practice legal documentation. However, the removal of these challenges can improve liquidity and the depth of the domestic and international investor base.
The desired impact is to improve the soundness of the financial system and resilience as well as enabling banks to effectively transform savings into loans and financial products to the real economy, Mr. Masalila said.
Caster Moseki, Director, Financial Markets, Bank of Botswana, who welcomed the partnership with ECA and Frontclear, emphasized the central bank’s commitment to develop Botswana’s money market.
Jean-Marc Kilolo, Economic Affairs Officer at ECA, introduced the commission’s functions and detailed ongoing efforts of its Innovative Finance and Capital Markets Section in helping African countries deepen their domestic financial markets.
While Erik van Dijk, Chief Risk & Finance Officer, Frontclear and Ingrid Hagen, Senior Vice-President, Frontclear delivered presentations on repo and swap transactions. They also discussed Frontclear’s concepts, structures, benefits, mechanisms and needed documentation as well as the purpose, steps, and required inputs for the Money Market Diagnostic study.
Hamilton Thomas, Programme Officer Capital Market at the SADC Secretariat presented the SADC Regional Policy Perspective on Financial Market development.
The workshop was attended by representatives from the central bank, the capital market authority, the securities exchange, commercial banks, pension funds, and legal firms.
Issued by:
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Economic Commission for Africa
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