International credit rating agency, Standard and Poor’s (S&P) Rating Services has revised Botswana’s economic outlook from stable to negative. The agency said Friday that the revision of the outlook to “negative” is meant to reflect the downside risks emanating from the possibility of a prolonged commodity price shock, especially in the diamond sector. Overall, the sound fiscal position strengthens the country’s resilience to external shocks. “We could lower the ratings if diamond sector production and prices remain depressed”, Standard and Poor’s (S&P) Rating Services warned on Friday.
The sovereign credit ratings are constrained by the country’s narrow economic base and the continued dominance of the diamond sector in the economy, which makes the country susceptible to external shocks. S&P says it has observed that Botswana’s “A-/A-2” ratings have appropriately taken account of the impact of the ongoing commodity price shock on the country’s fiscal position and economic activity, including the accumulated buffers which have enabled absorption of the terms of trade shocks.
The assessment also notes that prudent fiscal management and robust institutional framework continue to reinforce the ratings. The credit rating announcement came at the same time when African development bank also announced that its board has approved a P850 million line of credit (LOC) to the Botswana Development Corporation which will be used in key sectors to diversify the economy.
“The government will provide a sovereign guarantee to the facility to finance BDC’s investment pipeline in key sectors such as agri-business, clean energy, services, infrastructure and manufacturing. The LOC will be complemented by a grant to strengthen the BDC’s implementation capacity, effectiveness and deliver institution’s implementation skills,” the bank said late last week. The BDC loan comes at a time when the government is battling a narrow economic base that is dominated by mining and the public sectors.
In February, Finance minister Kenneth Matambo indicated that the domestic economic growth slowed down 3.2 percent in 2014 and further to 1.2 percent in 2015 due to weak demand for diamonds as well as electricity and water shortages. At the same time the downturn in the global diamond market and its impact on the domestic economy prompted the Government to adopt the Economic Stimulus Programme (ESP) as a strategy to boost growth, promote economic diversification, and create jobs. Meanwhile Standard and Poor’s (S&P) Rating Services has also released the country’s 2016 sovereign credit rating, which reaffirms the ratings of “A-” for long term bonds and “A-2”for short term bonds in domestic and foreign currency denominated borrowing.