Monday, September 21, 2020

Botswana may face another budget deficit

Botswana is most likely to announce another budget deficit in the coming budget speech slated for February next year, which will be largely blamed on the impact of the global credit crunch on the commodities sector.

The move comes┬á at a time when Debswana Diamond CompanyÔÇöthe country’s biggest foreign revenue earner ÔÇô said┬á this week that earnings for this year are likely to be lower by 50 percent compared to the previous year.

“We are doing 50 percent (in terms of sales) of what we did in 2008. And by the end of this year, we will be tracking somewhere around┬á50 percent,” Debswana’s Head of Finance, Tabake Kobedi, said.

The slow-down in Debswana revenues is most likely to affect government revenue since royalties and dividends will be severely affected.  The diamond market fell victim to the international economic crisis which some of the market players have long warned about at the beginning of the sub-prime market in the United States of America.
Debswana’s rough diamond sales┬ácontribute┬áabout 33 percent of the GDP and over 50 percent of government revenue.

“Given the fact that┬áthere was closure of the mines and┬áa drop in demand┬áof rough diamonds, there is likely to be a significant negative impact in diamond revenue. That will impact on royalties and dividend which Botswana government gets,” head of┬áCapital Asset Management Botswana, Leutlwetse Tumelo, said.

“I think we should expect another budget deficit in the next budget if government did not cut-down on spending. The best thing would be to put some of the few things on hold in an attempt to keep the country afloat,” he said.

The move comes at a time when Botswana government seems to have exhausted its lending opportunities as it has already raked P 12 billion in debt this year alone. Going forward, chances for further borrowings seem risky and are bound to result in some technical default.

Debswana, the world’s second largest diamond producer after Alrosa of Russia is currently battling with unsold┬á rough diamonds to the value of┬á about P 5 billion┬á as of the end of July this year.

Production is also expected to be lower from 33 million carats to around 18 million carats due to suspension of operations during the first four months of the year and the  No. 2 Orapa Plant and Damtshaa mine.

However, the company said it was banking on De Beers’ international campaign┬á to bolster┬á demand for the reminder of the year┬á and at the same time putting┬á weight on the┬á coming on stream for Cut 8 at Jwaneng mine to shore-up its position┬á on the┬á diamond production world map.

“We have to keep pace┬á of its implementation,” head of Debswana, Blackie Marole, said, adding that “it is going to be critical point to maintain (the position) of the main producer of diamonds in the world market.”

Further, Marole said confidence is coming up as they are beginning to see some physical increase  in purchase of goods.

The sluggish demand have presented government and Debswana with some  of the offers lately as some Chinese companies offered to buy diamonds directly from  Debswana, by-passing the established role of getting through the DTC.

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