2016 CHRISTMAS MESSAGE

by

Moses D Pelaelo
Governor

December 16, 2016

Director of Ceremonies, Board Members here present, Deputy
Governors, Rre Motsomi and Dr Masalila, Members of the Senior

Management Team and esteemed colleagues, good evening.

Before I proceed with my remarks this evening, may I request that we
stand and observe a minute of silence in memory and honour of our
former colleague, Mr Ben Sello, who passed on recently, in September
2016; may his soul rest in peace. As we do so, let us also remember
other colleagues who have not been able to join us this evening due to
ill-health or other similar emergencies, including families and friends who
did not make it to this day. We dearly miss them and our prayers and

well-wishes are with them.

"SILENCE"

It is a privilege and my pleasure to extend a warm welcome to each and
every one of you to this year's Staff Christmas Party. I extend a special
welcome and thank you to Board members here with us this evening;
staff highly appreciate your presence and, of course, the wisdom,
diligence and effort with which you continue to guide the affairs of the
Bank. Also, a warm welcome to those of our colleagues who joined the
Bank during the course of the year, and to congratulate them for joining
one of the finest and unique national institutions; there is only one
Central Bank in any country. We all look forward, each year, to the Staff
Christmas Party because of the opportunity it gives us to interact and

socialise outside of the more formal work environment.

Ladies and Gentlemen, as you are aware, former Governor Linah
Mohohlo retired from the Bank on October 20, 2016 after an illustrious
career spanning over a period 40 and half years, 17 of which she was
the Chairman of the Board and Chief Executive Officer of the Bank.
Similarly, former Deputy Governor Oduetse Motshidisi retired after 15
years as Deputy Governor; and a total of 27 years with the Bank. In
addition, both Advisors in the Governor's Office, Mr Sam McConnel and
Dr Haswel Bandawe, as well as other members of the Senior
Management team, former Head of Secretariat, Ms Pelani Siwawa-Ndai,
former Director of Banking & Currency Department, Mr Matale, and
former Deputy Director in the Human Resources Department, Ms
Rakgati, all left the Bank at the end of 2015 or during the course of this
year. Also, Sir Paul Collier resigned from the Board this year after

serving two terms.

Each of these former staff members and the Board member, and those
that have left the Bank during this and other years, in good standing, that
I have not been able to name, have individually and collectively, made a
sterling contribution in their various roles and ways to the development
of this Bank, to become what it is today; a reputable, respected and well
managed institution. We owe all our predecessors a debt of gratitude for
laying a strong foundation on which to continue to propel this institution
to even greater heights. As I mentioned during my recent meetings with
your respective Departments and Divisions, in my mind, the single most
important gift we can give to all former Governors, past Board members,
and all former staff of this Bank, is to continue to uphold high standards
of performance, a strong culture of excellence as well as utmost honesty
and integrity.

Dear Colleagues, as you are aware, in addition to my appointment, His
Excellency the President appointed Mr Andrew Motsomi and Dr
Kealeboga Masalila to the positions of Deputy Governor, with effect from
February 1, and December 1, 2016, respectively. Furthermore, the
Board appointed Ms Ewetse Rakhudu to fill the second position of
General Manager. Congratulations to all the three, for well-deserved
appointments. As this new leadership team settles down to the
business of running the affairs of the Bank, taking the baton and moving
forward, I want to assure you that we shall continue to do our best and
strive to steer this Bank to higher levels of institutional performance, with
the same vigour and profound excellence. Needless to state, this will
only be possible with your continuing support, commitment and
undivided loyalty to the Bank. Together, let us aspire to be the best and,
to paraphrase one motivational speaker, "success is a road under

construction".

Director of Ceremonies, Christmas is a time to celebrate, but it also
provides an opportunity for reflection and introspection on some of our
achievements in the year about to pass, and ponder the challenges we
will face in the year to come. Given that we are here tonight to
celebrate, I will confine my remarks only to the highlights of what was a

very busy and successful 2016.

To recap, the Bank's mandate is, in the main, to issue national currency,
Pula le thebe; maintenance of monetary and financial stability,
implementation of the exchange rate policy, fostering the safety and
soundness of banks; providing banking and advisory services to the
Government, banks and selected other institutions; promotion of an
efficient, reliable and secure payments system and safeguarding the
country's foreign exchange reserves. The Bank's enduring success in
3

fulfilling these functions depends on the skills, knowledge and abilities of
its staff; upholding good governance, effective risk management and
strong control environment, innovation, robust physical and IT

infrastructure, including a safe, secure and healthy working environment.

Ladies and Gentleman, despite the challenging global, regional and
domestic economic developments, the Bank's monetary policy
framework and implementation continue to be successful in anchoring
expectations of a low, predictable and sustainable level of inflation. The
latest Business Expectations Survey confirms this view. _ Inflation
fluctuated around the lower end of the Bank's 3 - 6 percent objective
range for most of the year, falling from 3.1 percent in December 2015 to
2.9 percent in November 2016. It reached a record low level of 2.6
percent in August and, more significantly, inflation has consistently been
within the objective range for more than three years since June 2013.
This is positive for wealth preservation, savings mobilisation, private
sector investment and, together with a relatively strong external position
and fiscal discipline, provide a conducive environment for sound and

sustainable economic development, including job creation.

Similarly, despite the weaker domestic economic activity and restrained
growth in personal incomes, the annual growth in commercial bank
credit increased from 7.1 percent in December 2015 to 7.8 percent in
October 2016. Lending to businesses accelerated somewhat, from an
annual contraction of 0.3 percent in December 2015 to a year-on-year
increase of 6.9 percent in October 2016. In contrast, the annual
expansion in household borrowing slowed from 12.8 percent to 8.5
percent in the same period. Despite this slower growth, household
credit continues to constitute a larger proportion of commercial bank
credit at 59.2 percent.

As you will be aware, effective October 1, 2016, the Chinese currency,
renminbi (RMB) became part of the Special Drawing Rights (SDR) and,
therefore, a constituent of the Pula basket. To this end, the Bank now
publishes, for market information, the RMB/US dollar and RMB/Pula
exchange rates alongside other major traded exchange rates. I suspect
that, very soon, some entrepreneurs will be applying for a bureau de
change licence to buy and sell RMB currency in Botswana.

The Investment Committee of the Bank met regularly to review global
financial, economic and political developments, making adjustments to
the Bank's investment portfolio positions, as appropriate. Notably, the
unexpected vote by the United Kingdom to leave the European Union;
the results of the United States presidential election and, more recently,
the outcome of the Italian referendum, led to heightened uncertainty and
volatility in the global markets. The management of the country's foreign
exchange reserves continues to be prudently undertaken by the
Financial Markets Department, underpinned by the key objectives of
safety, liquidity and return. In this regard, the country's relatively healthy
balance of payments position, investment strategies and global markets
developments, supported by robust institutional arrangements for
investment of the country's foreign exchange reserves, ensured that
these national assets are preserved. The level of these reserves was
BWP79.9 billion as at the end of November 2016 and equivalent to 17.5

months of import cover.

The Bank continued to conduct open market operations, through weekly
auctions of Bank of Botswana Certificates in support of monetary policy
implementation and effective transmission of policy signals, within the
context of increasing levels of excess liquidity in the domestic market.

5

Also, the Bank continued to conduct Government bond auctions in
accordance with the Government borrowing programme and, supportive

of capital markets development.

Director of Ceremonies, as part of its banking supervision and financial
stability mandates, the Bank continued to conduct macro and micro
prudential assessments in the context of subdued economic activity,
emerging vulnerabilities, such as weakening property and other asset
prices, marginal increases in non-performing loans and sluggish growth
in personal incomes. Overall, the banking sector was adequately
capitalised, liquid and profitable, and all banks were reported to be in
compliance with the minimum prudential requirements. The number of
commercial banks remained at 10 and the total banking assets
amounted to P78 billion at the end of September, unchanged from the
same level a year ago.

The on-going liquidation of the defunct Kingdom Bank Africa Limited
(KBAL) and the litigation instituted by one of the major creditors against
the Bank, are likely to be protracted and continue to consume the Bank's
supervisory resources. The KBAL saga has, once again, amplified the
so-called "expectation gap" in the licensing and supervision of banks. It
has also shown how a bank failure can, among other social ills, harm the
reputation of the Bank, including public confidence in the banking

system.

Dear Colleagues, the restructured Currency and Protective Services
Department continued to perform the important functions of issuing and
managing national currency. This year, the Bank completed a major
undertaking of destruction and disposal of demonetised old coin. I wish
to thank Bank Staff and other stakeholders who ensured that this major

6

project was completed successfully. The Bank also hosted a regional
workshop, under the auspices of the SADC Committee of Central Bank
Governors (CCBG), which brought together a number of international
and regional experts to share information on the efficient currency
management and inherent security considerations. I am told this was a

very successful workshop.

The National Payments System (NPS) landscape continues to evolve
and has witnessed the emergence of new players, new technologies and
new payments initiatives. The Banking, Payments and Settlement
Department, in particular, had a busy year as it continued to develop
regulations for the licensing and monitoring of Electronic Payments
Services Providers (EPSPs), to ensure efficient, reliable and effective
functioning of the country's payments and _ settlement systems.
Furthermore, the Bank has acceded to requests by some domestic
banks to join the SADC Integrated Regional Settlement System
(SIRESS). SIRESS is a major milestone towards the realisation of the
SADC's vision for an integrated payments system to facilitate closer
economic integration, free and increased intra-regional trade, investment
and tourism. It enables commercial banks and Central Banks to
discharge cross-border payments obligations within SADC with certainty
and speed, at low risk and relatively low cost.

As the threat of cyber-crime intensifies and scrutiny in relation to
international sanctions compliance heightened, globally, Anti-Money
Laundering (AML), the Combatting of the Financing of Terrorism (CFT)
and Know Your Customers (KYC) protocols, have received intense
attention. Efforts were made to ensure that the Bank's systems, and the
SWIFT international financial messaging platform, in particular, remain

robust.

The Bank discharged, with utmost care and diligence, its responsibilities
of providing banking services to its customers, mainly Government,
commercial banks and international financial institutions. The Bank's
settlement rates, for the internally managed portfolios and other foreign
payment obligations, mainly on behalf of Government, compare
favorably with those recorded by the Bank's counterparties. Let me also
take this opportunity to remind you, to ensure that your Cheque books
are compliant in accordance with the new Botswana Automated Clearing
House standards, to avoid any inconveniences after December 31,
2016.

Director of Ceremonies, the Bank continues to invest significant amount
of financial and other resources on IT infrastructure. This year,
Information Technology Department undertook a number of projects to
enhance operational efficiency, performance and resilience of the Bank's
mission critical systems such as the upgrade of the Botswana Interbank
Settlement System, SWIFT and the core Banking System (Globus T24).
Furthermore, the Department enhanced the security of the Wide Area
Network traffic by implementing advanced security features for
communication between the Headquarters and the Francistown Branch.

On the physical developments and facilities management, the Property
Management Division worked tirelessly to stabilise the Bank's power and
water supplies. The Bank has procured two new generators with
adequate capacity to meet the power needs of this Headquarters
building. Also, a new generator has been installed in Francistown,
again, with adequate capacity for full power coverage, including the
refurbished air-conditioning system at the Branch. Borehole installations
were completed at the Bank's Sports and Recreational Facility and

8

Headquarters, covering all irrigation requirements and providing an

alternative source to Water Utilities Corporation's domestic water supply.

Ladies and Gentlemen, the Bank's three-year Medium Term Plan serves
as the anchor and roadmap for formulation of work plans and budgets,
entailing a continuous assessment of the opportunities and threats
posed by the ever-changing and volatile socio-economic environment.
The Plan helps the Bank to remain alive to a variety of new challenges,
for which strategies must be developed. The Bank has no choice but to
continue to learn and adapt, including remaining accountable and
transparent in its operations, in line with expectations of stakeholders. I
am also pleased to report that the Bank's 2015 Annual Report, Banking
Supervision Report, Monetary Policy Statement and Audited Financial
Statements, as in the past, were published on time in compliance with
the statutory requirements. This augurs well for good governance and

public accountability.

The Bank's Internal Audit Division continued to perform its independent
assessment of the Bank's control environment. In this regard, the
Division undertook a number of audits, evaluating various controls in the
Bank through the use of modern auditing techniques such as risk-based
auditing. The Bank's internal control environment has been consistently
adjudged to be robust and effective.

Director of Ceremonies, the Bank continues to experience a relatively
high vacancy rate of about 8.47 percent. Notwithstanding the fact that a
total of 29 new staff members joined the Bank in 2016 and, despite
Human Resources Department's relentless recruitment efforts, there
were 50 vacancies as at December 16, 2016. Staff development
features prominently on the Bank's agenda and, in this regard, the Bank

9

constantly makes efforts to identify cost effective measures to address
human capital development needs through long-term, short-term and

part-time training initiatives.

On staff welfare and, consistent with past developments, the Bank's
productivity is underpinned by good health and a safe and secure
working environment, without which many of us would be less effective
or, at worst, dysfunctional. A number of staff continue to benefit from the
Bank's biennial and annual medical examinations as well as institutional
support for their medical, psychological and physiological needs. In this
regard, let me recognise the contribution and support extended by Bank
staff towards HIV/AIDS awareness within and outside the Bank. The
participation by Bank staff during this year's AIDS Day commemoration
activities and the various awareness-raising efforts reflect positively on
the Bank. Please join me in commending the Bank's HIV/AIDS
Coordinating Committee for continuing to spearhead efforts in the
achievement of the Bank's staff health policy objectives, to assure

fitness and health of all staff.

Dear Colleagues, regular exercise contributes to a healthy lifestyle;
hence the Bank's full support for the activities of the Bank of Botswana
Sporting Club. In this regard, the Bank has a gymnasium and operates
an integrated sporting facility in Gaborone and modest sports facilities at
the Galabgwe Court in Francistown. Please let's make good use of
these facilities. We have already received an invitation from the South
African Reserve Bank for the Inter-Central Banks competitions to be
held in Pretoria in 2017.

Dear Colleagues, notwithstanding a few unresolved issues, the relations
between the Central Bank Union and Management continue to be

10

cordial. I wish to thank the Chairman of the JNC, Deputy Governor
Motsomi, the President of the CBU, Mr Mpho Sebonego and your
respective Executive teams and, of course, the entire staff of the Bank
for this harmonious labour relations, built on mutual respect and

constructive engagement on relevant matters.

I believe we are pulling together as a team; but as I come near to the
end of my remarks, let me underscore that there are challenges ahead
and there is no room for complacency. On March 31, 2016, the Bank
celebrated 40 years of its existence in the year that our country
celebrated its golden jubilee, 50 years of independence. For these four
decades, there were surely a number of challenges but the Bank, and
this country, traversed through these difficult times, to become what we
are today, an upper middle income country. We must always remember
that the Bank is a professionally intensive institution which requires
vigilance and high standards of performance and, above all, uphold high
standards of integrity and ethical conduct. That is the hallmark of a

central banker.

I wish to take this opportunity to sincerely thank Board Members, Deputy
Governors, General Managers, Heads of Department and Divisions, and
indeed all staff of the Bank for their partnership and collaborative spirit in
discharging our respective responsibilities. May I also extend
congratulations to all those who excelled in one way or another during
the year, we owe them a debt of gratitude. This commendation extends
to all who will be recognised tonight for exceptional performance and
long and loyal service to the Bank. In addition to former Governor
Mohohlo, whom we will have an opportunity to appropriately bid farewell
in early 2017, let me extend a special recognition to two of our
colleagues, Ms Rachel Tshephe of the Currency & Protective Services

11

Department and Ms Sheila Motsisi of the Banking, Payments &
Settlement Department who have successfully completed 40 years of
dedicated and loyal service to the Bank. Well done Rachel and Sheila.

With these words, I wish you all and your families a pleasant and safe
festive season; I wish you well too in all your endeavours for 2017 and
beyond. I certainly also wish you an evening of responsible enjoyment.
Remember to look after yourselves well. Merry Christmas and Happy
New Year!!

Thank you for your kind attention.