Botswana creditworthiness upheld
Brian Benza | Tuesday April 26, 2016 18:00
This followed a review that took account of the commodity price shock and impact on the country’s economic and fiscal strength.
“Moody’s noted that the current economic and fiscal challenges, emanating from the external environment, are appropriately captured by the A2 rating. “The rating is underpinned by Botswana’s continued fiscal resilience, which is supported by the current level of foreign exchange reserves, relatively low public debt and a track record of prudent rule-based fiscal policy, as well as a strong institutional framework,” stated the ratings agency.
An A2 rating is viewed as an upper-medium grade with low credit risk.
Moody’s also observed that, given the healthy financial position and the stable political environment, the risks that could put renewed pressure on the ratings are judged to be low. These factors would ensure restoration of buffers and sustained economic growth in the aftermath of the current challenges, Moody’s said. Despite a first budget deficit in three years in 2015 as well as a narrowing current account surplus, Botswana still has $7.5 billion (65 percent of the Gross Domestic Product) in foreign exchange reserves.
However, Moody’s said Botswana ratings remain constrained by the relatively slow pace of economic diversification and high dependence of the country on the diamond industry for growth, revenue and export proceeds.
Real GDP growth is estimated to have turned negative in 2015 owing to weaknesses in the global demand for diamonds and a deceleration of activity in the non-mining sector, driven mainly by spillovers from lower mining activity.
However, the economy is expected to recover gradually over the next three years, driven by a gradual pick up in global diamond prices and fiscal stimulus. For Botswana, the main risks to the outlook are a slowdown in economic activity in major advanced and emerging markets and delays on restoring reliability and self-sufficiency in water and electricity, and in implementing other structural reforms.
In the near-term, the priorities are to increase the efficiency of public investment, reform the water and energy sectors, and improve workers’ skills and the business environment. In the medium-term, the IMF says growth strategy needs to be focused on a few areas and backed by bold reforms to mobilise domestic revenues, rationalise government spending and state-owned enterprises, implement a well-prioritised public investment programme and consider adopting a sound fiscal rule.
On the other hand, the current account surplus is estimated to have fallen from a peak of 16 percent of the GDP in 2014 to about 9 percent in 2015 on account of lower prices and volumes of diamonds and copper exports, as well as lower SACU revenues.