The Botswana economy lost as much as P16.7 billion last year as output shrank on the wake of the deadly Covid-19 outbreak which affected economic activities, according to the economic health report released on Friday.
Statistics Botswana’s gross domestic product (GDP) data for the last quarter of 2020 shows that nominal GDP – which measures a country’s gross domestic product using current prices, without adjusting for inflation – declined from 2019’s economic value of P197.5 billion to P180.7 billion in 2020, down by 8.5 percent and in line with projections from the Finance ministry.
Though Finance and Economic Development minister Dr. Thapelo Matsheka had initially projected the economy to shrink by 13 percent, he later revised it to a forecasted 8.9 percent contraction.
In the first quarter of 2020, Botswana’s real GDP – which measures the total output of goods and services in the country using a specific period – expanded by 2.7 percent before it plunged by a historic margin. The economy contracted by 24 percent in the second quarter – reflecting the biggest quarterly decline on record since Botswana gained independence in 1966.
Most sectors experienced negative growth in the second quarter as a result of the stringent containment measures implemented by the government for the larger part of last year. Though it had relatively fewer coronavirus cases, Botswana implemented a severe nationwide lockdown beginning of April, running for 48 days until mid-May. The government later placed Gaborone, the nation’s capital and the hub of economic activity, under lockdown for two weeks in early August.
In the third quarter, the GDP shrunk by 6 percent before easing with a 4.1 percent contraction in the fourth quarter of 2020. It was the softest economic downturn in the current three-quarter sequence of contraction, a sign of continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID-19 pandemic.
Though the retreat in economic activity is largely attributed to Covid-19 containment measures, Botswana’s economic cogs were already grinding slowly before the pandemic, creating extra pressure to the nation’s ballooning budget deficits and structural problems such as a poorly diversified economy and the soaring jobless numbers.
From 2010 to 2018, the GDP had an average growth rate of 3.7 percent, reflecting a gradual decline in economic growth over the ten-year period. GDP growth further slowed to 3 percent in 2019, down from 4.5 percent recorded in 2018. 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.
The government has since unveiled an Economic Recovery and Transformation Plan (ERTP), which is expected to provide direction on how to stimulate economic activities post Covid-19. To implement the ERTP together with the remainder of the eleventh national development plan (NDP 11), the government says it will need no less than P40 billion, with more than half of the funds used for plugging budget deficits.
The usual cash flush diamond exporter has been on the race to the bottom in the last four years as it continued to spend more than it was earning, and eventually using a large chunk of its savings to finance the budget shortfalls. Between 2017 and 2019, budget shortfalls have added to P21.8 billion, while projections for 2020/2021 financial year points to an all-time high budget deficit of P21 billion.
In the past, budget deficits were largely financed by drawing down on accumulated savings held in the Government Investment Account (GIA) – the government’s portion of the foreign exchange reserves held at the Bank of Botswana. However, that option is no longer available as the GIA has been depleted by past drawdowns and the revenue shortfall in the 2020/2021 fiscal year.
The level of the GIA has drastically declined from an opening balance of P18.5 billion at the end of 2019/20 financial year to P5.6 billion as at November 2020, a decline of 72 percent.