Saturday, March 6, 2021

S & P warns Botswana on repercussions of undiversified economy

Standard & Poor’s (S&P) has again warned Botswana that it needs to look at ways of diversifying the economy if its credit rating has to be sustained. The rating agency said last week when releasing the country’s rating that the diamond rich nation should reduce over dependence on primary exports like diamonds if it wants to have a rating upgrade.

Although, the long-term and short-term ratings of “A-” and “A-2” were affirmed respectively, S&P said the ratings are constrained by the country’s narrow economic base and its vulnerability to external shocks, despite efforts to diversify the economy away from its heavy reliance on the diamond sector.

“The ratings could also come under pressure if economic growth was to falter or if the country’s fiscal or external positions were to deteriorate,” it said.

The undiversified economy is a concern even for bodies like the World Bank. The Bretton Institute organisation in 2004 drew reforms for Botswana aimed at addressing bottlenecks that could affect the flow of Foreign Direct Investment (FDI). Up to now, many of these recommendations have not been implemented. The World Bank said the continued uncertainty in global markets and the slow pace of economic recovery in advanced countries continue to act as a drag on Botswana’s economic outlook, mainly due to the country’s heavy reliance on diamond exports. Real GDP growth slowed considerably to around four percent in 2012 after two years of strong post-crisis growth, mainly as a result of significant contraction in the mining sector, due to continued subdued global demand (hitting both volumes and price).

S&P added: “On the other hand, reduced dependence on the mining sector for current account and fiscal receipts through successful broadening of private sector development, which could boost GDP growth relative to other middle-income countries, could lead to a possible ratings upgrade.”

Releasing the results of the first of the two annual reviews of Botswana’s sovereign credit rating for 2015, it said the long-term and short-term ratings of “A-” and “A-2”, respectively, have been affirmed. The “stable” economic outlook has also been retained.

“The ratings are supported by the country’s robust institutions as well as the strong external and fiscal balance sheets, well managed economy and a long record of political stability. The stable outlook reflects expectations of resilient economic growth, fiscal surpluses and continued institutional strength.”

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