Moody’s Investment Services, one of the world’s leading credit rating agencies, upgraded Botswana’s foreign currency outlook from stable to positive, thanks to the diversification within the mining sector.
The report released last week pointed out that Botswana’s economic conditions are on the upturn due to the devolution of certain activities from Diamond Trading Company (DTC) in London to Gaborone starting early in the next year. Further, the report was also bullish about the intended Mmamabula project earmarked to start production in 2011.
“The upgrade reflects both the continued strengthening of Botswana’s financial position and improved prospects for economic diversification,” Moody’s said.
This report also anticipates that on the basis of these trends, an upgrade of the rating of foreign currency rating should be considered in twelve to eighteen months. However, the ratings are likely to remain constrained by the major development challenges which the country still faces.
The Botswana government, which is in a 50/50 joint venture with the world’s leading diamond producer, De Beers, reached a landmark agreement during the renegotiation of lease extensions for Orapa and Jwaneng mines last year. The agreement included a raft of measures, such as, the relocation of DTC to Botswana, which resulted in the formation of a company called DTC Botswana.
Since the announcement, 16 diamond cutting and polishing companies have set up in Botswana and are expected to create close to 5000 jobs, directly and indirectly.
Furthermore, Moody’s has stressed that ratings are also underpinned by a strong culture of fiscal prudence and the government’s low external debt.
The international rating agency said, as a result, Botswana is in a “significantly stronger” financial position than many other countries on similar or even higher ratings. Botswana has the highest credit rating in Africa, similar to southern European countries.
However, Moody’s said Botswana’s potential is blighted by the narrow economic base leading to high unemployment and lingering poverty as well as fiscal pressure associated with the cost of tackling the HIV/AIDS pandemic.
The report also noted the continuing heavy dependency on government spending as a driver of economic activity together with the need for spending restraint and productivity improvements as growth in public revenues from diamonds mining start to level off.
The report is the sixth in a series of assessments for Botswana since the initial credit rating was obtained in 2001.
The domestic currency outlook continues to remain steady, according to the report. The report is in line with that of Standard & Poor credit rating agency.