Global ratings agency – Moody’s Investors Service (Moody’s) has taken a dim view of Botswana’s economy, downgrading its rating from “Stable” to “Negative”.
In the latest out-of-calendar review of Botswana’s credit ratings, the agency says it has changed the outlook from stable to negative to reflect the increasing risks of lower economic growth, higher government budget deficits and likely resultant increase in government borrowing.
The agency said in statement that Botswana’s latest update to the recent March 2020 rating, on a date that deviates from the previously published sovereign release calendar, is prompted by the risks associated with coronavirus shocks, given Botswana’s strong dependency on the diamonds industry for growth, exports and budget revenues.
In their assessment, Moody’s economic pundits observed that the anticipated adverse effects of COVID-19 pandemic, combined with the current challenges Botswana faces on fiscal consolidation, could mean further deterioration of fiscal metrics to a level not consistent with the ‘A2’ sovereign credit rating.
In April, another credit rating agency – Standard and Poors (S&P) Global Ratings also lowered the country’s long-term foreign and local currency sovereign credit, based on fears that the weakened diamond industry will exacerbate Botswana’s budget deficits.
During April 2020, the S&P Global downgraded Botswana’s foreign and local currency long term credit ratings from “A-” to “BBB+”. A credit rating is an educated opinion about an issuer or borrower’s likelihood to meet its financial obligations in full and on time.
According to the latest S&P ratings, Botswana’s credit is still investment grade, just that the country’s capacity to meet obligations is weakening.
Meanwhile in the statement released this past week, Moody’s has indicated that there is a potential to change the outlook to stable if the observed deterioration of the fiscal metrics, caused by the coronavirus shock, is likely to be stabilised by credible fiscal measures aimed at rebuilding fiscal buffers in the long term and reduce fiscal vulnerabilities posed by the rigid budget structure.
Botswana ended 2019 with a cumulative trade balance deficit of P14.2 billion, the highest since 2012’s trade deficit of P16.3 billion, caused by decline in diamond exports, the main foreign exchange earner for government. This has also put strain on government, with expenditure outpacing revenues.
The budget deficit for 2019/20 is estimated at P7.7 billion or 3.8 percent of GDP, while the expected deficit for 2020/21 is set at P6.9 billion or 3.1 percent of GDP, and then another deficit of P4.4 billion in 2021/22. The country’s Finance ministry officials have said the deficits will be funded through loans and efficient tax collection, including increasing rates and levies paid.
S&P Global ratings has also slashed Botswana’s economic growth, forecasting to grow by 2.6 percent in 2020, lower than 3.6 percent from last year.