Moody's Lowers Botswana's Economic Outlook To Negative

Brian Benza
Staff Writer | Monday February 22, 2010 00:00

The downgrade, which comes just a week after another ratings agency Standards and Poors lowered Botswana's credit rating, reflects the continued strain on the country's finances imposed by the global economic crisis.

However, despite the change in the outlook, Moody's say Botswana sovereign credit rating remains unchanged at A2 for both local and foreign currency government bonds. 'The rating is unchanged at A2 for both local and foreign currency government bonds. 'However, the outlook has changed from 'Stable' to 'Negative', and this reflects the continued strain on the country's finances imposed by the global economic crisis.

The outlook is likely to be upgraded to 'Stable' should the Government compress spending to a level more consistent with the revenue stream,' says a statement from Moody's.

Botswana has for the second consecutive year run a huge budget deficit largely pushed up by development projects enshrined in the country master development programme, NDP10.

However Moody's believe the huge budget deficit are not yet a threat to the country's international credit worthiness.  

'The maintenance of the rating in the current economic climate represents a vote of confidence in the country's track record of economic management.  By previously accumulating substantial reserves, the Government has been able to maintain spending despite the recent shortfalls in revenues that have led to substantial budget deficits. This has supported activity in the domestic economy and allowed important development projects that are essential for the successful diversification of the economy to proceed,' said Moody's.

Announcing the 2010/11 national budget, Minster of Finance, Kenneth Matambo said the country will not be looking for international lenders to finance the budget deficit this year and will instead tap into the underutilised local capital market which is in excess liquidity.  Although the ratings agency thinks Botswana is still in a secure position, it has warned against continued indebtedness which might not be sustainable in the future emphasising that the orderly control of expenditure, as anticipated in the 2010 Budget Speech, is essential for long-term budget sustainability.

'It is also very important that there is a successful implementation of economic diversification strategies.

'If these initiatives are not achieved, there is a likelihood that the rating could be downgraded in future,' said Moody's.