Monday, August 10, 2020

Moody’s cut Botswana’s growth forecast

Credit ratings agency, Moody’s, has retained Botswana on a negative and cut growth outlook, citing the country’s exposure to falling commodity prices that would affect its fiscal position, thus raising concerns about meeting loan obligations. 

In the latest annual credit ratings, Moody’s maintained Botswana’s rating at ‘A2 Negative’, the same rate it gave the country in May. The scorecard outlined increasing risks to Botswana’s fiscal strength due to the severe shock to its growth and the government’s revenue resulting from the coronavirus pandemic impact on the economy and the important diamond sector in particular. 

Moody’s said significantly lower growth, much weaker government revenues and higher borrowing requirements will aggravate already deteriorating fiscal trends and risk accelerating the erosion of fiscal buffers. Though the country has reported fewer than 400 confirmed cases of Covid19, the country’s top export, diamonds sales, were hampered by the pandemic.

The coronavirus outbreak and its wider impact on global trade, commodity prices and financial markets present long-lasting and severe economic, financial and social challenges to many African sovereigns, Moody’s said in its latest report. 

The ratings agency added that the fall in revenue from the economic slowdown, spending on measures to support the economy, and a rise in healthcare spending will sharply widen fiscal deficits and increase borrowing requirements. 

“Many African governments have limited financial and institutional capacity to absorb the current coronavirus shock,” said Kelvin Dalrymple, a Moody’s Vice President – Senior Credit Officer and the report’s author. “The longer-term negative effects on the region’s sovereign credit profiles will leave them with diminished capacity to absorb future shocks.”

Moody’s has cut growth forecast for Botswana, projecting the diamond dependent economy’s gross domestic product to contract by 10.9 percent this year on the back of domestic restrictions and less demand in sectors such as tourism and mining. 

The country’s economy has been weakening, growing at a decelerating pace. The GDP grew by 2.5 percent in the first quarter of the year, which was lower than 2019’s first quarter GDP rate of 4.2 percent. Last year’s real GDP grew by 3 percent to P99.4 billion which was a drop from the 2018’s 4.5 percent. Nominal GDP, which uses current prices, advanced by 3.6 percent to P197.3 million, yet still lower than 2018’s 5.7 percent growth.

From 2010 to 2018, GDP rate on average grew by 3.7 percent, reflecting a gradual decline in economic growth over the ten-year period. At these rates, Botswana’s economy is said to be operating below potential output, which experts have suggested should be above 6 percent for the economy to create the much-needed jobs.

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