Botswana’s Outlook Revised From Negative To Stable

  • Diamond industry to carry the bulk of the projected rebound


International credit ratings firm, S&P Global Ratings, expects Botswana’s economy to rebound by 8.5 percent in real terms in 2021 because the diamond industry is rebounding from 2020’s large pandemic-induced contraction.

In a research update on Botswana published recently on the Bank of Botswana (BoB) website, S&P Global Ratings says as a result, they expect the fiscal and current account deficits will start narrowing in 2021 and 2022 before yielding a small surplus from 2023, resulting in a gradual strengthening of foreign exchange reserves.

“A stable and predictable institutional framework continues to support the ratings, and the monetary policy framework supports macroeconomic stability,” the S&P Global Ratings update says. “We revised the outlook on Botswana to stable from negative and affirmed our ‘BBB+/A-2’ ratings.”

S&P also affirmed Botswana’s ‘BBB+/A-2’ long- and short-term foreign and local currency sovereign credit ratings. “At the same time, we revised our outlook to stable and affirmed our ‘BBB+/A-2’ long- and short-term foreign and local currency credit ratings on the Bank of Botswana, which we equalise with our ratings on the sovereign,” the firm says.

“The stable outlook reflects our expectation that Botswana’s economic rebound, supported by a strong diamond sector recovery, will lead to a material improvement of the fiscal and external performance over the next two years.”

In a downside scenario, the firm says it could lower their ratings on Botswana if fiscal or external performance were weaker than their forecasts. “This could happen, for instance, if recovery of upstream and downstream diamond segments was delayed or short-lived because of further fallout from the pandemic,” the agency notes.

In a upside scenario, S&P says it could raise the ratings if Botswana manages to rebuild its fiscal and external buffers significantly, alongside a diversification of its export base as this would help shield the economy from future external shocks.

Meanwhile, S&P estimates that diamond production at Debswana (a 50-50 joint venture between De Beers and the government) to rebound by close to 30 percent in 2021 despite some supply constraints at one of Botswana’s two main diamond mines, Orapa.

“Although the performance of non-mining sectors will benefit to some extent from the mining sector recovery, trade, hotels, and restaurants have been affected by curfew hours and intermittent restrictions because of delays in vaccination,” the firm says.

“In addition, the end of the state of emergency in September 2021 may lead to loss of jobs, which will further undermine the recovery of non-mining sectors. Supply chain disruptions and the possibility of further variants could compound the risks.”

According to the credit rating agency’s estimations, Botswana’s general government deficit will fall to 4 percent of GDP in 2021 after reaching a large 8.4 percent in 2020. “Despite the deterioration in fiscal metrics in 2020, our ratings on Botswana remain supported by the country’s still modest net general government debt (stock) levels, its net external asset position, and a largely predictable and robust institutional framework,” the firm notes.