Monday, January 17, 2022

FNBB harbour mixed feelings towards local economy

As the Minister of Finance and Development Planning, Kenneth Matambo delivers the 2016/17 budget speech on February 1st, First National Bank Botswana (FNBB) is optimistic that Botswana’s fiscus will remain healthy despite the likelihood of posting a budget deficit.

FNBB Economist Moatlhodi Sebabole said the government has the legal capacity to borrow as debt-to-GDP levels of 23 percent remain well below the self-imposed threshold of 40 percent, adding that there is still a healthy appetite from local funders to lend to government. He stated that the expectation is for government to issue more paper against its P15 billion programme as the utilisation remains low, yet the market appetite remains healthy. 

“Against a weak growth backdrop, we expect the fiscus to register deficits in 2015/16 and 2016/17. This will reflect lower diamond and mining revenues as well as reduced SACU receipts,” he said.

FNBB Economist Sebabole said the amount paid by South Africa to the BLNS countries (Botswana, Lesotho, Namibia and Swaziland) from the customs pool is forecast to decline by around 30 percent in 2016/17. He added that arrears to Botswana from the customs pool were over-compensated by P7 billion in fiscal year 2014/15, and this will now be recovered from Botswana in the current year pressuring customs revenue even further. 

He is of the view that government wage bill is expected to increase due to parastatals such as the Special Economic Zones Authority being set-up, while drought relief measures and other social programmes will inflate the operational budget. He also stated that infrastructure expenditure is expected to increase in line with the ESP programme, together with the implementation of the NDP 11 in FY17/18 and Vision 2036.

“At FNBB, we expect the economy to grow below trend in 2016 and 2017 due to a battling mining sector and a slowdown in regional trade, combined with significant supply-side constraints. Electricity and water shortages are expected to persist over the next few years, with power supply only forecast to meet demand in 2018, and the completion of the North-South Carrier II water pipeline only expected by FY18/19,” he said.

Sebabole said the developments in the currency market have also benefited the national coffers as a weaker rand means a reduction in the import bill. He stated that on the export-side, a stronger dollar has provided some trade-offs on the weaker diamond prices as Botswana primarily exports in US dollars.

“The market obviously eagerly awaits more details of the ESP from the national budget speech. As an expenditure drive, there will be need to establish details of how the fiscal outlook remains in the medium-term. However, the government will need to improve its policy execution for the package to be successful in economic diversification and sustainable growth since previous policy initiatives have been hampered by inefficient implementation,” Sebabole stated.

The FNBB Economist said mining activity which accounts for approximately 22 percent of GDP and 36 percent of fiscal revenue, has slowed as a result of the struggling diamond industry, falling copper and nickel output (following the closure of Discovery Metals Limited) and lower production of soda ash.  He said diamond revenues are negatively affected by weak global demand, high rough diamond prices, elevated stock levels and tight credit conditions for diamond site holders. Sebabole stated that worryingly, while Debswana has cut its 2016 production and sales forecasts by around 15 percent, the sales levels are expected to hit around 50 percent of revised expectations. He added that if this trend continues, it poses additional downside risk to our 2016 GDP growth forecast of 3.1 percent.

“The discovery of the second largest diamond at Karowe mine and several other high quality gems, as well as expected robust recovery in the diamond industry by 2018, gives us confidence that mining will show above-trend recoveries from 2018 onwards,” he said.

Sebabole further spoke about the lower oil prices that have been a benefit for the current account, particularly the import bill as even fuel moved from being the largest import in value term, to the third largest.  He said the setting up of Botswana Oil Limited came at an opportune time as it allows Botswana to stockpile whilst prices remain low.

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