S&P forecasts 4.2% growth on higher gov't spending

Pauline Dikuelo | Friday May 3, 2019 12:45

S&P’s forecast is in line with government and the Bank of Botswana’s own projections for economic growth this year. The International Monetary Fund expects 3.9 percent while the African Development Bank last week projected 3.8 percent. In an update released on Friday, S&P said stronger government spending would anchor the country’s economic performance this year. Government plans to spend P64 billion in 2019-2020 up from P61.7 billion in the last financial year, running a P7.3 billion budget deficit.

“An expansionary fiscal stance ahead of the general elections in October 2019 should support this growth,” S&P analysts said. “We expect strong domestic demand this year, we also expect diamond output will increase at a moderate rate.” The analysts added: “The country’s most important economic sector is likely to benefit from resilient global demand, but price trends and demand for diamonds are highly susceptible to external factors, for example demand in the US or China as key markets.”

The stronger domestic demand is attributed to the civil service salary increase announced in February, which is expected to boost key non-mining sectors such as services and local manufacturing. “We expect that public sector salary increases should further underpin consumption growth, alongside investments in public infrastructure, for example important bridges,” the agency’s analysts said.

Domestic demand has flagged for several years with civil servants, from whom the private sector usually benchmarks, receiving below-inflation salary adjustments. The lower demand has helped keep inflation low, but impacted on the local non-mining sector. Sectors such as retail and insurance have been hit by the local demand, while banks have wrestled rising impairments as a result of the restrained growth in local wages. S&P analysts said they expected the government to cut spending next year in line with reining in the deficit and balancing the budget.