Ratings agency, Standard & Poorâ€™s Services sees Botswanaâ€™s budget bouncing back to surpluses from next year supported by a rebound in diamond production.
In a country report released this week, the agency said they project Botswana will report larger surpluses in 2016-2018 as revenues are supported by rising mineral revenues from the normalisation of diamond production at about 23 million carats per year over the medium term, and Southern African Customs Union (SACU) revenue receipts remain stable.
“That said, fiscal performance may be vulnerable to a revenue base that relies on volatile receipts from mining, and on SACU customs revenue.
We expect Botswana’s net fiscal asset position will be maintained at about 10% of GDP over 2015-2018. We estimate that contingent liabilities from the financial and nonfinancial public sectors are limited,” read the report.
Debswana trimmed its production target for 2015 to 20 million carats from 23 million carats on the back of a weaker demand for rough diamonds.
In the report, in which it affirmed Botswana’s ‘A-/A-2’ long-and short-term foreign and local currency sovereign credit ratings, Standard & Poor’s said while diamond revenues may decline slightly in 2015, they anticipate government will post a near balanced fiscal position next year and finance some of its spending programmes through the liquidation of fiscal assets.
On the current account, the ratings agency said as it expects diamond receipts to slow down this year, the current account surplus should drop to 8.5 percent of GDP in 2015 from 16.1 percent in 2014 and average 7.5 percent over 2015-2018.
According to Standard & Poor’s, the ratings are supported by Botswana’s relatively strong institutions, fairly strong external and fiscal balance sheets, reasonably well-managed minerals-based economy, long track record of political stability and relatively sound institutional effectiveness.
It however said the ratings are constrained by the country’s narrow economic base, which relies heavily on the diamond sector and is vulnerable to external shocks, despite efforts to diversify.