“The large increases in fiscal deficits in Southern Africa in 2020 translated into higher debt. Between 2019 and 2020 government debt as a percentage of GDP rose an average of 13 percent in the region, with the sharpest increases in Botswana (34 percent), Zambia (25 percent) and South Africa (24 percent),” so says the latest Southern Africa economic outlook from the African Development Bank that is themed around debt as a post-Covid recovery dynamic.
On the whole, Botswana’s use of domestic debt has been rising, from 53 percent in 2012 to a projected 70 percent in 2021. The Bank says that these trends in domestic debt use “reflect the deepening of some country’s bond market, enabling it to mobilize domestic resources and tap into idle domestic savings. Alongside Lesotho, and Madagascar, Botswana exhibit low and stable debt dynamics.
Botswana’s ratio of debt to GDP, which had been falling since the global financial crisis, rose to an estimated 21 percent in 2020 as revenues underperformed and the government responded to COVID-19. Alongside Lesotho, Madagascar, and eSwatini, Botswana had gross debt-to-GDP levels below the 60 percent SADC macroeconomic convergence threshold. On the other hand, Angola and Mozambique had the highest ratios of debt to GDP, exceeding 120 percent, while Zambia’s was 117 percent.
Unlike most countries in the region, Botswana borrowed a lot from the Paris Club, an informal group of creditor nations that meets each month in the French capital, after Covid-19. The use of debt from different creditors means that the borrowed funds are denominated in different currencies, though a large portion is in U.S. dollars. Botswana’s external debt is denominated in at least seven currencies. As the Bank cautions, borrowing in different currencies exposes countries to exchange rate risks. Between 2010 and 2019 the Botswana pula depreciated against the U.S. dollar, suggesting that its external debt has been increasing in local currency terms.
Alongside Lesotho, and eSwatini, Botswana’s reserves as a percentage of external debt are above 100 percent – they are very low in the rest of Southern Africa. The Bank notes that “a high ratio suggests that a country has the capacity to liquidate its external debt without difficulties and is thus a promising sign of debt sustainability.” The latter notwithstanding, the Bank cautions that the outlook for debt is not yet promising because in most countries in the region, government gross debt as a percentage of GDP is expected to increase.
“Though most of the increases are projected to be mild, they are relatively high in Zambia (where debt as a percentage of GDP will increase by 11 percentage points between 2021 and 2022) followed by Botswana and eSwatini (5 percentage points). The largest drop is expected in Angola (where debt is projected to fall 11 percentage points), followed by São Tomé & Príncipe (5 percentage points).”