Botswana has been trying to diversify its economy from minerals dependence over years, but there is nothing to show for it yet, something that has worried rating agencies.
While those in the government enclave might be punching the air after Moody’s Investors Service (Moody’s) recent affirmation of the country’s A2 rating for both foreign and domestic bonds and the stable outlook for the year, the agency does not see bullish future if things remain the same.
In its latest update on Botswana, the credit rating agency stated that in the medium term, slow progress in the implementation of structural reforms and limited economic diversification would undermine the fiscal position and put downward pressure on the rating.
“However, in the near term, a substantial depletion of fiscal reserves and/or a rapid increase in public debt could lead to a downgrade”, reads part of the agency’s statement released this week.
Moody also noted in the statement that there is a possibility of a medium term upward revision of the ratings if progress is made in diamond beneficiation, economic diversification, and the implementation of efficiency-enhancing public sector reforms as well as private sector development leading to a marked reduction in unemployment.
Meanwhile the agency reaffirmed its rating of ‘A2′ for long and short-term bonds denominated in both domestic and foreign currency, as well as a stable outlook.
The ratings are underpinned by the country’s strong fiscal position, with low debt burden, a sizeable sovereign wealth fund, strong institutions and well designed macroeconomic frameworks, as well as stable political environment. The stable outlook is premised on prospects for continued fiscal prudence and achievement of a balanced budget in the medium term. Expected growth in diamond output, progress in enhancing diamond value addition and development of the services sector also contribute to the rating.