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SA’s downgrade effects to spillover into Botswana

STAFF WRITER
Masalila
The downgrading of South Africa’s (SA)credit ratings to junk status is seen having spillover effects on Botswana, as the country is heavily dependent on its neighbour for imports and Southern African Customs Union (SACU) revenues.

Briefing the media on Wednesday, Bank of Botswana   deputy governor, Kealeboga Masalila said the effects of SA’s credit rating downgrading are such that higher interest rates, difficulty in raising funding and macroeconomic instability in that country might directly impact on Botswana’s inflation, export competitiveness and SACU revenues.

“The downdragging is likely to push up the cost of products in South Africa and this will be transferred to Botswana resulting in higher imported inflation. 

Our exchange rate could also be impacted as it is strongly linked to the rand resulting in Botswana exports becoming uncompetitive due to a weaker rand. 

An unstable macroeconomic environment in South Africa will also affect volumes of trade in the region and as a result reduce SACU inflows to Botswana. All these are potential threats to Botswana although we don’t see them as being imminent at the moment,” he said.

Botswana, which is semi-arid, depends on South Africa for over 80% of food requirements while the pula, through the basket of

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currencies exchange rate mechanism, derives 45% of its value from the rand.

On the other hand, SACU revenues are projected to be the largest contributor to Botswana revenues in the 2017/2018 national budget at 29% followed by mineral revenues at 28%.

In April, Standard and Poor’s (S&P) reaffirmed Botswana ‘A-/A-2’ ratings investment grade, but retained the negative outlook saying it reflects the downside risks stemming from the possibility of a persistent commodity price shock, particularly in the diamond markets.

 S&P, however, said the outlook could be revised upwards from ‘negative’ to ‘stable’ should more favourable developments emerge in the diamond sector, including a significant improvement in the fiscal position and an emergence of a broad-based private sector participation in the domestic economy.

On the contrary, S&P said the country’s sovereign credit rating is threatened by a possible persistence of underperformance of the diamond sector that could result in a weaker economic growth and worsening of the fiscal position over the next 12 months.



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