Botswana’s foreign exchange reserves have fallen in another sign of the country’s deteriorating financial position and its vulnerability to external shocks which have been amplified by the coronavirus pandemic.
Bank of Botswana’s statement of financial position for the year ended March 2020 reveals that total assets fell to P62.9 billion, down from the previous month’s P66.9 billion, and lower than P74.2 billion recorded in March 2019. Much of the total assets is attributed to foreign exchanges, which have declined to P62 billion in March, down from P66 billion in February and P68.9 billion in January. The foreign exchange reserves have fallen by 15.6 percent since May 2019.
The reserves are made up of the P8.2 billion liquidity investment tranche, the P47.7 billion Pula fund and the P1.6 billion held in the International Monetary Fund. Moses Pelaelo, the central bank governor, last month disclosed that of the total amount of foreign exchange reserves, the government’s share of the reserves is lower than P20 billion, with the rest of the reserves belonging to the private sector and individuals.
The revelation by the governor was a sobering blow to the country’s citizens which have for the long time had the impression that the foreign exchange reserves where wholly owned by the government. The less than P20 billion held in the government’s investment account reflects the country’s weakening financial power at a time when the country will need extra cash to fund the widening budget deficits.
Botswana’s economy has been under pressure even before the coronavirus outbreak that is assailing economies across the world. The real gross pomestic product (GDP) growth slowed to 3 percent in 2019, compared to a faster growth of 4.5 percent in 2018. The lower increase in output was mainly attributable to a contraction in mining output, which forms an important part of Botswana’s economic architecture.
Economic performance for this year is expected to be the worst in the country’s modern history. The coronavirus outbreak and consequent containment measures have severely curtailed economic activity globally and domestically as production, supply chains, project implementation and provision of goods and services are halted.
“Similarly, consumption and spending are disrupted, hence domestic demand pressures and foreign prices remain subdued. Consequently, overall risks to the inflation outlook are skewed to the downside, taking into account weak domestic and global economic activity and likely decrease in international commodity prices,” said the governor when announcing BoB’s Monetary Policy Committee (MPC) decision to slash bank rate from 4.75 percent to 4.25 percent in April.
Pelaelo warned that inflation may rise above current forecasts if international commodity prices increase beyond current projections and in the event of upward price pressures occasioned by supply constraints due to travel restrictions and lockdowns.
The economic assessment by the country’s Finance and Economic Development ministry and the International Monetary Fund (IMF) have also painted a gloomy picture, expecting a sharp deterioration in economic growth for Botswana in 2020. The IMF forecast GDP to fall by 5.4 percent this year, before rebounding to 6.8 percent in 2021, while the Finance ministry estimates that the economy will contract by 13.1 percent and rebound to a 3.9 percent growth in 2021.
Though Botswana has recorded fewer cases of confirmed coronavirus cases, the economic damage inflicted is on the backdrop of falling diamond exports, tourism and tax receipts. This has put pressure on the government’s fiscal position and forced it to revise its earlier budget proposals, reducing projected earnings and cutting back on planned government expenditure as curtailment of the virus became a top priority.