Mood's forecasts 7% drop for Botswana's economy
Pauline Dikuelo | Friday June 5, 2020 15:46
In a position announced recently, Moody’s however affirmed the country’s long-term local and foreign currency issuer ratings at A2, amongst the highest in Africa. The status means Botswana is one of the continent’s best borrowers and technically one of the best countries to raise international capital from.
In the latest update, Moody’s said the expected seven percent contraction would be due to the sharp slowdown in domestic demand and the disruptive impact of the coronavirus (COVID-19) on the mining sector, particularly diamonds.
“The growth downturn is expected to be deeper compared to that experienced by most sovereigns in Sub-Saharan Africa,” the agency said.
“The authorities are preparing a fiscal stimulus package beyond the economic measures already announced to cushion the impact of the coronavirus shock on growth, supporting a recovery in activity later this year and next year as restrictive measures domestically and abroad are gradually lifted and mining activity recovers.” Despite its brighter forecast for growth in the local economy, the ratings agency changed its outlook for the country to negative from stable, saying this reflected increasing risks to Botswana’s fiscal strength due to severe growth shock caused by COVID-19. According to the ratings agency, the pandemic has impacted conditions in the diamond market and the tourism sector, two of the country’s most significant economic sectors.
“Lower mineral, particularly diamond, and non-mineral revenue and fiscal measures to contain the effect of the pandemic will contribute to the fiscal deficit widening to close to 10% of the GDP in fiscal 2020 from an estimated four percent in fiscal 2019 and remaining close to six percent of GDP in fiscal 2021 as the impact of lower Southern African Customs Union revenue materialises with a one-year lag,” the agency noted.
In addition the agency expects the large shock to revenue as well as government’s multibillion pula stimulus policy response to lead a significant deterioration in fiscal metrics, jeopardising the medium term fiscal consolidation plans and accelerating the already evident erosion of the Pula Fund, the country’s sovereign wealth fund.
In March, prior to the onset of the coronavirus locally, Moody’s released a positive review of Botswana’s outlook, saying the country had taken a path to fiscal consolidation, with low debt levels and strong buffers. At the time, Moody’s assigned Botswana a stable outlook while affirming the A2 long-term rating.