Moody’s Investors Service says it has affirmed Botswana’s A2 long-term issuer and senior unsecured debt ratings adding that the outlook remains stable.
The ratings agency said it analysed Botswana’s credit profile in the context of the commodity price shock and its impact on the country’s economic and fiscal strength In a statement, Moody's said the affirmation reflects Moody's view that despite pressure on some of the country's credit metrics, the challenges that the current external environment poses for the country are appropriately captured by the A2 rating.
Moody’s analyzed Botswana's credit profile in the context of the commodity price shock and its impact on the country's economic and fiscal strength.
“The relatively less adverse global market conditions and more benign outlook for diamond prices Botswana's main commodity in comparison to base metal prices are also credit supportive as they mitigate the magnitude of the commodity price shock on the economy and the government's budgetary position,” it said.
The key factors that continue to support the country's credit profile include the exceptional fiscal strength at almost 25% of GDP and in particular well managed sovereign wealth fund which is relative to A-rated peers. In addition, the country's sound institutional framework, with strong democratic institutions .
“The stable outlook reflects our expectation that Botswana's track record of sound fiscal management and government effectiveness will ensure a gradual rebuilding of fiscal buffers that are now being used and will gradually also support transition to a more stable growth model,” it stated.
On the other hand, Botswana's rating remains constrained by the country's high dependence on the diamond industry for economic growth, fiscal revenues and export proceeds. The ongoing commodity shock once again underscored this vulnerability.
Botswana's long-term local-currency bond and deposit ceilings are unchanged at Aa3 and the long-term foreign-currency bond and deposit ceilings are unchanged at Aa3/A2 respectively. The short-term foreign currency bond and deposit ceilings are also unaffected and remain Prime-1 (P-1).
In 2015, due to decline in demand for and prices of diamonds, Botswana's real GDP declined by 0.3%, while the fiscal deficit reached almost 3% of GDP. To help stimulate growth in 2016 and to ease unemployment pressures, the 2016/17 budget will record a fiscal deficit of 3.8% of GDP (P 6,046 million).
Since fiscal deficits in 2016/17 , 2018/19 are to be largely covered by drawing on the existing assets, Moody's forecasts the government debt-to-GDP ratio to be only marginally increasing from its current 16% level. The fiscal reserves could fall to about 15% of GDP in 2018/19 the level comparable to the aftermath of the global financial crisis in 2010.
Moody’s highlighted that in the recent past, Botswana has demonstrated its commitment to sound fiscal stance and reserve accumulation by having reversed expansionary fiscal policies applied during the global financial crisis and restoring budget balance or surpluses.
“As a result, low government debt and the large foreign asset positions of the Bank of Botswana put the sovereign in a strong net creditor position of about 40% of GDP at the end of 2015,” Moody’s stated.
The rating agency expects this track record of building buffers to continue as domestic and global conditions improve over the rating horizon.
The rating agency expects Botswana's budget deficit to reach 3.8% of GDP this fiscal year and remain below 4% of GDP in 2017/18. After 2016/17, Moody's expects the government to move towards its objective of reducing fiscal expenditures below 30% of GDP and tilt their composition towards growth-enhancing capital outlays.
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.