Botswana’s economic outlook, credit ratings under duress

Koobonye Ramokopelwa - BG reporter
Friday, 04 November 2016
Botswana’s economic outlook, credit ratings under duress

Botswana’s credit worthiness ratings remain negative, largely due to challenges that continue to affect its biggest revenue earner, diamonds and the current global commodity price decline.

This is the message that is coming out clearly from Standard & Poor (S&P), a leading credit ratings agency after assessing the mineral-rich country. Botswana has posted muted economic growths in recent years. S&P has reaffirmed the country’s ratings of ‘A- for long term bonds and ‘A-2’ for short term borrowings both in Pula and foreign denominated currencies.

The ratings have accounted the fact that the country is also experiencing a drought and electricity supplies are also not predictable.  President Ian Khama has already declared the country drought-stricken, announcing further interim relief programmes for rural dwellers to keep the drought at bay. “The retention of the negative outlook reflects the downward risks stemming from the possibility of a persistent commodity price shock, particularly in the diamond market,” said a statement from Bank of Botswana.

Diamonds, the economy’s mainstay, have been affected by weak global demand, as major consumers such as United States and China are blowing hot and cold.  Diamonds contribute about 30 percent to treasury coffers. However, this contribution has been declining steadily in recent years. Meanwhile, S&P has highlighted that the country’s economic outlook could be upgraded from negative to stable ‘should more favourable developments emerge in the domestic economy.’  The agency also noted that the country’s fiscal performance should also increase notably. These also include the capital markets.

The country is reeling from massive job bleeds from the mining sector, as headwinds from the global landscape start to hit home. More than 5000 workers from state-owned BCL copper mine are now jobless after the company was placed under liquidation. The mine’s production was halted last month partly because of lower copper prices.

The biggest reason came from the fact that production costs and current debts made it no longer feasible to continue mining.  The company needed nearly P8 billion to rise from the dead. Production at Kimberly Diamonds’ Lerala mine has also been halted. More jobs will also be affected from the diamond producing mine. Last week, Finance minister Kenneth Matambo launched an ambitious National Development Plan (NDP 11), which provides the domestic economy and social development a roadmap for the next six years.

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