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BMI: Trade deficit to widen, hamper growth

Botswana will see a gradual recovery in real GDP growth over the next five years, supported by private consumption and fixed investment, a BMI research has revealed. However, a combination of sluggish mining sector exports and rising capital goods imports will widen the trade deficit, tempering the extent of the growth.

According to the report low diamond prices will sustain pressure on Botswana's external accounts over the next year, as export revenues and inward investment remain sluggish. However, a relatively strong reserve position and an investor friendly business environment will ensure these dynamics do not become a lasting drag on the overall health of the economy.

A benign outlook for inflation and a change to the BMI monetary policy forecast for South Africa have led BMI to adjust its forecast for the key policy rate in Botswana downwards. With inflation stable but credit growth and confidence surveys low, the Bank of Botswana will focus on supporting economic growth, reads the BMI report.

“Botswana's budget deficit will widen to the largest in six years as the government seeks to implement fiscal stimulus. We forecast a smaller deficit than the government as project realisation will be low. The ruling Botswana Democratic Party will continue to dominate policymaking in the coming quarters, aided by forthcoming changes to the composition of the legislature, and underpinning our view for policy continuity in the coming quarters. That said, these changes will not be sufficient to head off fragmentation within the ruling party during the 2018 handover of power from the current president to an interim successor,” says the report.

The Botswanan pula will resume its depreciatory course before year-end 2016, in line with our view for the South African rand bouncing off resistance. Weak fundamentals in the pula's currency basket countries will see this trend continue through 2017, entailing some modest depreciation.

Key Risks:

  • Ongoing revisions to Botswana's national accounts estimates will affect growth. Amid ongoing efforts by Statistics Botswana to more accurately portray the size and structure of the economy, GDP estimates remain subject to frequent and often notable adjustments.

  • Given Botswana's dependence on imported energy and food, any unexpected rise in global food or oil prices beyond our forecasts will affect the country's growth levels.

  • Uncertain energy supplies pose a persistent risk to economic activity in Botswana. This is exacerbated by the current drought affecting the region.

Africa Country Risk team here at BMI Research to send you over the complete list of 36 NEW Africa Country Risk Reports, just updated for Q3/4 2016. The team believe that they'll be crucial in helping you plan for the economic, political and financial changes that are going to shape Africa in the second half of 2016 and beyond:

The reports contain BMI Research's very latest 100% independent forecasts and analysis that will allow you to immediately assess your risk exposure, evaluate the pace and stability of each country and understand how business environment changes will impact you directly. You'll be able to make confident decisions on the way forward in each of your key markets by utilising the systematic coverage and intelligence delivered by the reports:


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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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