Moody’s affirmed the country’s sovereign credit ratings at A2, according to a statement released last week after a biannual review conducted recently. The A2 rating is the highest in Africa, meaning Botswana is the continent’s best borrower and technically one of the best countries to raise international capital from.
According to Moody’s, while there were several areas of concern, the local economy’s outlook continued to support the continent’s highest credit rating.
“The low debt burden, strong debt affordability indicators and a sizeable sovereign wealth fund continue to support fiscal strength, despite the gradual erosion of fiscal buffers, while solid institutions and prudent policymaking support macroeconomic stability,” Moody’s noted.
“A track record of political stability and modest government liquidity and banking sector risks limit event risk.”
The agency noted that with fiscal buffers being eroded in recent years by budget deficits, government was embarking on consolidation in which development spending would be tightened and sharpened, in order to achieve budget surpluses in the medium term.
“Moody’s expects Botswana to embark on a fiscal consolidation path in the next fiscal year while fiscal and external buffers will support its shock absorption capacity,” the agency said.
“Moody’s expects Botswana’s budget
deficit to narrow to 2.8 percent of GDP in 2020-2021 from an estimated 3.9 percent of GDP in 2019-2020 and gradually decline thereafter.
“The fiscal adjustment will occur through lower development expenditure while recurrent expenditure is expected to continue to increase.”
The ratings agency’s scorecard on Botswana was, however, not all rosy, with Moody’s again highlighting structural issues that have dogged the economy for decades. These, according to the agency, include the slow pace of economic diversification, continued dependence on diamonds, large and inefficient public sector, high unemployment and inequality.
More immediately, the agency said its forecasts of 3.9 percent growth for the local economy would be challenged by sluggish conditions in South Africa, which is now in recession, lower SACU revenues and the risks to global consumer demand for diamonds.
Already, the effect of the coronavirus is being felt on diamonds, where the De Beers second auction of the year, held in Gaborone, saw sales down nearly 36% at $355 million as Chinese consumers continued in lockdown.
“Botswana’s fiscal strength assessment reflects the government’s strong fiscal metrics and fiscal resilience, supported by large fiscal buffers and prudent fiscal policy,” the agency said.