Saturday, March 6, 2021

Botswana retains A2 rating for both foreign and domestic bonds

It could be a while before Botswana hits the ‘high’ mark under the Moody’s sovereign credit rankings, as the country retained the A2 rating for both foreign and domestic bonds together with the stable outlook in 2012. In 2011 Botswana’s A2 government bond ratings gained a stable from negative.

“Botswana is very likely to remain within this moderate category for the foreseeable future given that we do not expect the country’s long-term economic strength to change significantly in either direction, on the back of the leveling-off in diamond output although there will be some expansion in non-mining sectors and the relatively low population growth,” Moody’s stated.

Moody’s emphasized the strong financial position of the government, resulting from prudent fiscal policies that compare favourably with other resource-rich, developing economies. A ranking shared by countries including Azerbaijan, China, Cayman Islands, and Kuwait.

The rating agency notes that Botswana’s key credit strengths include the government’s robust balance sheet, as highlighted by its fiscal surplus of around 1 percent of GDP in 2012 (compared with a deficit of -12.3 percent in 2009) and its low debt levels of around 18.5 percent of GDP in 2012.

Botswana shares the rank with countries like Bulgaria, Chile, Croatia, Mauritius and Thailand. With a GDP per capita on purchasing power parity (PPP) basis of around $14,750, the country is at the upper end of our ‘moderate’ category in terms of economic strength

The assessment further noted that despite the major challenges arising in the past four years, the authorities’ response to the global financial crisis has been consistently effective.

“We consider Botswana’s susceptibility to event risk as ‘low’ based on an assessment of the receding risks posed by regional problems; and the low likelihood that the high incidence of HIV/AIDS and the persistently high levels of poverty and unemployment will generate significant downward pressure on the government’s ratings,” stated the report.

Nonetheless, the Moody’s report has bemoaned Botswana’s heavy reliance on the diamond industry as a key credit weakness. Moody’s expects to see fiscal consolidation and economic diversification becoming more crucial to preserving the country’s economic strength given that its diamond mine resources will begin to deplete in 2030.

Despite the government’s efforts to diversify the economy, the mining industry’s share of gross value added remains high at around 20 percent in 2012, albeit down from 29 percent in the 2000s. As a result of this narrow economic base, the economy is highly susceptible to shocks, as reflected in the 7.8 percent contraction in GDP during the global financial crisis in 2009.

“Diversifying the economy is always difficult to achieve for a commodity exporter country. For Botswana, it is especially complicated since its private sector is heavily dependent on government spending at a time when the public sector has to retrench,” revealed the report.

The agency notes that upward pressure on Botswana’s A2 rating could build up as a result of a successful implementation of the economic diversification strategies over the medium term, coupled with the accumulation of an even larger net financial position.

Moody’s assesses Botswana’s institutional strength as ‘high’, a ranking shared by countries including the Bahamas, Czech Republic , Mexico , Taiwan and Trinidad & Tobago . The ‘high’ score is based on its political stability, policy predictability, strong governance and successful implementation of forward-looking policies.

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