Wednesday, October 21, 2020

Botswana economy in worst contraction since independence

The Botswana economy recorded its biggest contraction, officially entering recession, with the economy expected to contract further this year in what could be the country’s worst economic year.

Real gross domestic product (GDP), which measures the total output of goods and services in the country at a specific period, plunged from P25 billion in the first quarter to P18.8 billion, reflecting a 24.8 percent fall in economic activity between June and August. On a yearly comparison, the GDP is down by 24 percent. Both contractions reflect biggest fall on record since Botswana gained independence in 1966.

Using current prices, the nominal GDP decreased by 27.3 percent between the first two quarters, moving from the first quarter’s P50.7 billion to P36.8 billion, indicating that P13.9 billion was lost from economic activities between June and August, periods where the country enforced strict Covid-19 containment measures. Though it has relatively low coronavirus cases, Botswana implemented a severe nationwide lockdown beginning of April, running for 48 days until mid-May. The government later placed Gaborone, the nation’s capital and the hub of economic activity, under lockdown for two weeks in early August.

“The poor performance of the economy was mainly due to the impact of measures that were put in place to combat the spread of the COVID-19 pandemic,” statistician general Dr. Burton Mguni said. “The deep contraction was attributed to the huge decline in real value added of Mining and Quarrying and Trade, Hotels & Restaurants industries by 60.2 and 40.3 percent respectively.”

With two successive quarterly falls, Botswana has officially entered into a technical recession, which happens when a country’s GDP falls in two consecutive quarters. First quarter GDP contracted by 0.8 percent from last year’s last quarter, and on a yearly basis, the GDP grew by 2.6 percent between March to May 2020, lower than the 4.2 percent growth in the same period last year.

The economy’s historic drop sets the stage in what will be a bruising year for Botswana, confirming several forecasts that the economy will be in recession for the current year. Since the Covid-19 outbreak, the finance ministry and its agencies have made several revisions to the GDP, lowering their expectations as forecasts become gloomy. Late in April after the country implemented the first nationwide lockdown, the finance minister Dr. Thapelo Matsheka  projected the GDP to decline by 13.1 percent, down from the projected growth of 4.4 percent.

This has since been revised to a contraction of 8.9 percent, steeper than the contraction during 2008 financial crisis, when the economy shrunk by 7.6 percent, according to data compiled by Bank of Botswana. Though the retreat in economic activity is largely attributed to Covid-19 containment measures, Botswana’s economic cogs have been grinding slowly, adding extra pressure to the nation’s ballooning budget deficits and structural problems such as a poorly diversified economy and a rising unemployment rate.

From 2010 to 2018, the GDP had an average growth rate of 3.7 percent, reflecting a gradual decline in economic growth over the ten-year period. GDP growth further  slowed to 3 percent in 2019, down from 4.5 percent recorded in 2018. At these rates, Botswana’s economy is said to be operating below potential output, which experts have suggested should be above 6 percent for the economy to create the much-needed jobs.

The government has unveiled an Economic Recovery and Transformation Plan (ERTP), which is expected to provide direction on how to stimulate economic activities post Covid-19. To implement the ERTP together with the remainder of the eleventh national development plan (NDP 11), the government says it will need no less than P40 billion, with more than half of the funds used for plugging budget deficits, which have since 2017 grown to a cumulative P20 billion.

S&P Global Ratings (previously Standard and Poor’s) in late September changed Botswana’s economic outlook from stable to negative, following another negative outlook by another credit ratings giant Moody’s in May. The dim assessment was premised on expected higher pressures on the country’s economic, external and fiscal performance over the next two years, notably arising from the adverse impact of the COVID-19 pandemic, compounded by weaker diamond exports.

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