The Central Bank has put smiles on the faces of Batswana by revealing the country’s foreign exchange reserves rose this year, as balance of payments recorded a surplus on the back of strong recovery in exports.
Unaudited figures of the economy showed forex reserves rebounded to P56.4 billion from P50.8 billion recorded at the end of 2010 to sit at P56.4 billion by May.
Bank of Botswana Director of Research, Kealeboga Masalila, said this represents a 17 month import cover.
“By May 2011, foreign reserves stood at P56.4 billion and up to March 2011, there is a surplus of P2.8 billion on the balance of payments showing recovery of exports and the draw down from the African Development Bank loan outstanding,” Masalila said at the presentation of the Central Bank’s annual report for 2010.
The country’s current account was in P5.1 billion deficit last year, but it is now moving into a positive territory.
The rebound is mainly driven by exports, especially diamonds that have recorded strong sales in the first quarter of the year.
Botswana’s diamond exports netted over US $ 1 billion or nearly P 7 billion in the first quarter of this year, the highest figure ever achieved┬áduring┬áJanuary- March since records began in 2001.
Data released by Bank of Botswana recently indicated that in March diamond export reached P 3 048 billion, which is 50.7 percent above the┬ácorresponding period last year.
January and February recorded P 2 451.7 billion and P 1 367 billion, respectively.
At the height of recession, foreign reserves received a knock and the balance of payments was in deficit.
At the end of 2010, the foreign exchange reserves amounted to P50.8 billion down by P7.1 billion (12.2 percent) from P57.9 billion in December 2009, and equivalent to 15 months of imports of goods and services.
After increasing at the start of the year, the foreign exchange reserves followed a generally downward trend during 2010.
Bank of Botswana blamed the fall in reserves to reduced financial inflows from the Southern African Customs Union (SACU) and an increase in drawdown by the government from external loans led to a reduction in the level of foreign exchange reserves last year.
“The decline in reserves was due to a combination of the overall balance of payments deficit and exchange rate movements, with appreciation of the Pula against most major currencies lowering the value of reserves in domestic currency terms,” the Bank said.
Botswana, like the rest of exporting economies, was hard hit by the recession as key markets of U.S and Europe were highly affected. However, recovery has been on sight since last year.
Diamond production by Debswana is projected to increase by about 20 percent in 2011 to 27 million carats, and then to 30 million carats in 2012.
Capacity at the existing diamond mines is being expanded and plans to open more new mines are at various stages of development, ranging from preliminary prospecting to mine construction.
A major new copper and silver mine is being developed close to Maun, and other developments in the same area are anticipated. Plans to invest in uranium mining are at an advanced stage, while the focus for exploiting Botswana’s large coal reserves has shifted away from regional power supply to exports of thermal coal.
Bank of Botswana annual report for 2010 showed the bank’s total assets/liabilities declined by 5 percent from P58.2 billion in December 2009 to P51.2 billion in December 2010.
It says the contraction in the balance sheet in 2010 was mainly due to a reduction of 36.3 percent in government deposits to help finance the budget deficit, while the value of BoBCs increased by 3.6 percent to P17.6 billion.
The recovery will cheer the economy as the country’s economy is heavily reliant on diamond export that contributes over 30 percent to the Gross Domestic Products┬á(GDP), and over 50 percent of┬ágovernment┬árevenue.
Head of Capital Securities, Gregory Matsake has said strong diamond sales were good for the economy, but wondered whether Botswana was out of recession.
“It is not clear as to whether our economy is out of the woods, however, because the biggest risks are the major┬áconsuming countries, notably United States of America and Japan that are still struggling to come out of the recession. But, that demand gap is likely to be filled in by China and India who are increasingly becoming major players in diamond consumption,” Matsake said.