Botswana Economy To Expand By 5%-Moody's

MBONGENI MGUNI
Staff Writer | Monday June 14, 2010 00:00

 

In a credit research note released last Thursday, Moody's said Government's savings lost to the financing of last year's P13.4-billion deficit were now being rebuilt through mining input and rising diamond prices.

The agency said Botswana's debt would remain below a quarter of the Gross Domestic Product as it was largely financed from savings or bonds 'in the very liquid domestic market'.

'Although Government's assets will be further drawn down, they will remain a sufficient buffer until the real recovery takes hold,' said Moody's Sovereign Risk Group Analyst, Aurelien Mali. 'The country's capacity to eventually rebuild the cushion also plays a crucial role in our assessment.'

Maintaining its negative outlook on government bonds, Moody's said this assessment reflected the strains on government finances inflicted by the recession and increased challenges for fiscal policy. The agency said the negative outlook was also based on long-term growth potential in light of the levelling off of diamond output.

However, Moody's said economic output data from the first quarter of the year showed some positivism.

'Based on data from the first quarter of 2010, Moody's believes that most of the initial impact on growth will be transitory, with economic expansion this year of five percent, which would erase last year's loss,' the agency said.

Mali stressed the importance of economic diversification, given the 'clear vulnerability of the economy and public finances to the diamond market', the analyst said.

'However, diversifying the economy will be difficult to achieve in view of the private sector's heavy dependence on government spending and employment,' said Moody's analyst.

'Both are expected to decrease substantially, as described in NDP 10 agreed to last year.'

The completion of large infrastructure projects, deemed essential to economic diversification, was also contributing to the persistent deficit, the agency said.