International credit rating agency, Standard and Poor’s (S&P) Rating Services has said that Botswana’s economic outlook remains negative despite a long-track record of political stability.
The agency, which recently relegated neighbouring South Africa to “junk” status, said that its credit rating of Botswana has taken account of the enduring impact of the ongoing subdued commodity prices, and its associated risk, on the country’s fiscal position and economic activity.
As a result, Botswana’s ratings of ‘A’ for long-term bonds and ‘A-2′ for short-term bonds in domestic and foreign currency denominated borrowing have been affirmed by the international rating agency.
The retention of the negative outlook reflects the downside risks stemming from the possibility of a persistent commodity price shock, particularly in the diamond markets.
“Nevertheless, the country’s sound fiscal position strengthens its resilience to external shocks,” reads part of the S&P statement on the domestic economy released late Friday.
S&P further said that the outlook could be revised upwards from “negative” to “stable” should more favourable developments emerge in the diamond sector, including a significant improvement in the fiscal position and an emergence of a broad-based private sector participation in the domestic economy.
The agency also warned that: “On the contrary, the country’s sovereign credit rating is threatened by a possible persistence of underperformance of the diamond sector that could result in a weaker economic growth and worsening of the fiscal position over the next 12 months”
Botswana was first downgraded to the “negative” status in May 2016 given its narrow economic base and the continued dominance of the diamond sector in the economy, which makes the country susceptible to external shocks.
Official data provided by the Bank of Botswana (BoB) shows that Botswana’s Gross Domestic Product (GDP) grew by 4.3 percent in 2016 largely due to improvement in diamond trade, which contributed to a 5.5 percent growth of the non-mining sector, from 1.7 percent in the previous year.
At the same time, mining output contracted at a slower rate of 3.7 percent in 2016, compared to a decrease of 19.6 percent in 2015.