As the world grapples with the outbreak of coronavirus (COVID-19) in an increasingly interconnected world, what happens in developed countries economy impacts Africa at large and Botswana in particular. But what does this mean for the future of economies of import reliant countries such as Botswana?
Thapelo Matsheka – Minister responsible for economic development in Botswana said on Wednesday that as an open economy that is integrated with regional and global economies, Botswana will be affected through several channels.He told journalists in the capital Gaborone that the pandemic would have a profound impact on the structure of the economy which was currently dependent on revenue generated through diamond exports, tourism sector and income generated through SACU membership.
On the other hand, the central bank – Bank of Botswana also agrees that among others, there shall be a probable local infection, weaker global demand affecting exports diamonds and tourism as well as disruption to global supply chains affecting local production and project execution.The central bank says weak performance of global financial markets will impact on the foreign exchange reserves.“Overall, GDP growth in 2020 is expected to be much lower than the earlier projection of 4.4 percent”, said BOB.In a statement released on Wednesday, the central bank said that given that the full extent of economic and financial disruption from COVID-19 is yet to be established, the measures currently expended will continue to be reviewed as the need arises.Amongst other things the central bank announced that the prudential capital adequacy ratio (CAR) for commercial banks in the country has been reduced from 15 percent to 12.5 percent. It is anticipated that the move enables banks to satisfy capital requirements and address liquidity challenges as they continue to support economic activity under conditions of possible increase in credit defaults.Already the connection of the local economy to the global village was felt this week after Diamond mining giant De Beers has resorted to postponing its third rough diamond sales cycle.
“Due to the public health restrictions on the movement of people and product in Botswana, South Africa and India, which prohibit customers from traveling and prevent the shipment of goods to customers’ international operations, De Beers Group will not hold its third Sight of 2020,” said Anglo American, which owns 85 percent of De Beers, while the Botswana government holds 15 percent.
The biggest diamond miner by value holds ten sales cycles or sights in Gaborone, where its top selected sightholders, estimate to be about 80, converge to purchase rough diamonds in packages allocated by De Beers.DOWNGRADEDMeanwhile this week Standard and Poors (S&P) Global Ratings took a dim view of the local economy, lowering its long-term foreign and local currency sovereign credit.The downgrade, according to the agency is based on fears that the weakened diamond industry will exacerbate the country’s budget deficits.
According to the latest S&P ratings, Botswana’s credit is still investment grade, just that the country’s capacity to meet obligations is weakening. An “A” rating meant Botswana had strong capacity to meet financial commitments. The now “BBB+” rating means the country has adequate capacity to meet financial commitments.The major credit risk researcher moved Botswana to “BBB+” based on a prolonged depressed diamond market that could negatively affect the already weakening fiscal and external balance sheets of the country, with a current account deficit of more than 8 percent of gross domestic product (GDP).“The African nation will likely record twin deficits in the next few years, which could gradually cut into its “traditionally strong” fiscal and external buffers over the medium term. The rating agency expects the country’s liquid external assets to continue to exceed its external debt,” said S&P in a statement released on Friday.Botswana ended 2019 with a cumulative trade balance deficit of P14.2 billion, the highest since 2012’s trade deficit of P16.3 billion, caused by decline in diamond exports, the main foreign exchange earner for government. This has also put strain on government, with expenditure outpacing revenues.