Saturday, December 4, 2021

Deficits increase, weakening the country’s Reserves

Botswana’s diamond led economy continues to record trade deficits, which have weakened the country’s reserves and balance of payments.

According to the Trade and Merchandise report for June released this week by Statistics Botswana, exports increased by 43.4 percent to P7 billion compared to May’s revised value of P4.8 billion.

As usual, the increase was on the back of improved trade in rough diamonds, with the country selling P6.4 billion in June, up by 43.9 percent from the previous month. Diamonds account for over 90 percent of Botswana’s total exports.

Imports in June declined slightly by 1.9 percent to P7.6 billion, down from May’s P7.7 billion. The decrease was attributed to a 36.1 percent reduction in importation of vehicles and transport equipment . However, the decline was moderated by 16.4 percent uptick in importation of chemicals and rubber products.

The majority of goods bought outside Botswana in Botswana were led by diamonds, which contributed 36.9 percent (P2.8 billion) to total imports, followed by Food, Beverages and Tobacco with 11.3 percent (P859.5 million) and 11.2 percent (P858.7 million) for fuel. Machinery and Electrical Equipment contributed 11.1 percent (P850.6 million).

With imports higher than exports, the monthly trade for June resulted in a P611 million deficit, lower than the massive P2.8 billion deficit in May. The latest data from Statistics Botswana shows that Botswana has recorded a P5.4 billion trade deficit in the second quarter, a major reversal from the P863 million surplus in the first quarter.

The last time the country recorded a quarterly trade surplus was in the second quarter of 2018. Last year, Botswana registered a P25.9 billion trade deficit, the largest trade imbalance on record. The historic deficit extended the P14.2 billion shortfall recoded in 2019, the third highest since 2012’s trade shortfall of P16.3 billion.

The country’s continued growing deficits have reversed gains made in the five-year period of consecutive trade balance surpluses that started in 2014, though the surpluses were growing smaller in size.

According to Bank of Botswana’s recently released Monetary Policy Report for August, the official foreign exchange reserves amounted to P51 billion in May, a decrease of 22.8 percent from P66.1 billion in May 2020. The decrease was a result of the drawdown in foreign exchange reserves to finance government financial obligations and international payments, notably import of goods and services, the report said.

The current account of the balance of payments (BoP) recorded a surplus of P4.7 billion in the first quarter of 2021, compared to a revised deficit of P2.4 billion in the corresponding period of 2020, which was the lowest recorded in 2020, with the highest deficit of P7.5 billion recorded in the second quarter of 2020.

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