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Consumer-service sectors expected to boost Botswana’s economy – Fitch Solutions

While the mining and construction sectors are expected to see a decline in production, the performance of the consumer-service sectors is expected to assist in boosting the country’s Gross Domestic Product (GDP) growth in 2020.

The prediction was made by Fitch Solutions in its October Africa Monitor for the southern African region, but it quickly predicted that the country’s GDP growth would remain subdued compared to the previous years due poor performances mainly in the mining and construction sectors. “While we expect that an improving outlook for the consumer-facing sectors will support a modest rebound in GDP growth next year, this will remain subdued compared to previous years,” Fitch Solutions said.

It said the normal rain season expected this coming summer farming season would significantly improve the earnings for the 23 percent labour employed in the agricultural sector. “We expect that, following drought conditions in 2019, a return to normalised weather and healthier harvests in 2020 will improve earnings for the 23percent of the labour force employed in the agricultural sector, alleviating downward pressure on consumers’ purchasing power,” it said.

Other services sectors such as trade, hotels and restaurant were also expected to support a moderate rebound of the economy in 2020. “We believe that this will provide tailwinds to private sector credit growth, which has struggled to recover from a 20-year low of two percent year-on-year in September 2017, further improving the outlook for the consumer over the coming quarters. As services sectors such as trade, hotels and restaurants accounted for 19.3 percent of total GDP in 2018, we expect this to support a moderate rebound in headline growth from 3.9 percent in 2019 to 4.1 percent in 2020,” Fitch Solutions said in its outlook.

“That said, continued short-term headwinds to the mining and construction sectors will prevent a greater acceleration of growth next year, which will remain below its 2010-2018 average of 4.9 percent.  “Moreover, we forecast that the Bank of Botswana will cut its benchmark interest rate by 50 basis points to 4.5 percent in H219 (Second Half of 2019),” it predicted.

In its forecast on Botswana, Fitch Solutions said real GDP growth would slow from 4.5 percent in 2018 to 3.9 percent in 2019, before accelerating slightly to 4.1 percent in 2020 due to a positive outlook for the consumer-facing sectors, though remaining below its 2010-2018 average of 4.9 percent.

“We expect declining output in the diamond mining sector to weigh on Botswana's real GDP growth over the coming quarters. Declining mining output will be driven by the Cut 9 project at Debswana's Jwaneng mine, Botswana’s largest diamond mine in value terms,” it said.
The project involves widening and deepening the mine’s pit to extend its lifespan to 2035 and this will entail reduced output over the short term.

“Accordingly, our Mining Team forecasts that diamond output will contract by 3 percent and 2 percent in 2019 and 2020 respectively. With diamonds accounting for 92.6 percent of Botswana’s total exports in 2018, we expect this decline will weaken the country’s overall growth prospects over the coming quarters,” said Fitch Solutions. It said in the years ahead, the mining sector growth will be increasingly be driven by rapidly expanding coal mine production.

However, coal only accounts for 0.3 percent of exports and while Fitch Solutions forecasted a robust coal production growth of 15.0 percent in 2019 and 11.6 percent in 2020, this will be insufficient to significantly boost headline growth in the short- to medium term. “The construction sector is also set for below-trend growth over 2019 and 2020. Public investment in Botswana is being targeted towards the extension of power transmission grids across the country's northwest and the on-going construction of the Mohembo and Kazungula bridges as part of the government's National Development Plan 11,”it noted.

Fitch Solutions said public investments in Botswana were being targeted towards the extension of power transmission grids across the country’s northwest and the on-going construction of the Mohembo and Kazungula bridges as part of the government's National Development Plan 11.“However, we expect that weaker diamond and Southern African Customs Union revenues, along with an elevated public wage bill, will limit the government’s capacity to significantly boost investment into new infrastructure projects over the short term.

“On the upside, should mining sector output exceed our expectations despite the on-going improvement works at the Jwaneng mine, this could lead to higher headline growth than we currently anticipate given the sector’s large share of total GDP,” the company said.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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