Botswana’s Gross Domestic Product (GDP) grew by 5.3% in q4 2014 according to data from Statistics Botswana. The slower than expected growth was mainly led by decline in growth from the mining sector which is the largest contributor to the economy – analysts at Motswedi Securities have observed.
According to a Motswedi Securities quarterly economic bulletin, the mining sector posted a 2.5% growth as compared to 10.4% registered the previous quarter. The same report reveals that the Trade, Hotels & Restaurants sector which is the 2nd largest contributor grew by 7.8% while the Finance & Business Service sector advanced by 5%, slower than the revised 7.8% posted in the previous quarter.
“On a different note, The Water & Electricity sector which has been dragging economic growth, suffered a -236.4% the lowest figure during the year 2014. For the year 2014, GDP growth was 4.4% relatively lower than the 9.3% (revised) recorded in 2013 despite the stronger performance from the Jwaneng mines during q3; where higher grade carats were produced.
This slower growth was also attributable to the Water & Electricity sector which registered the only negative growth (of -18.5%) during 2014. The Trade, Hotels & Restaurant posted the 2nd largest growth of 7.1% reflecting the resilience of some of the developed economies such as the US,” reads the Motswedi securities economic brief.
Going forward, analysts at Motswedi Securities anticipate volatility from the Mining sector which remains subjective to developments on the international markets, mainly the health of the US economy and some of the developed economies. Eurozone recently initiated a stimulus program in order to propel the 19 nation economy.
“We remain concerned about the persisting Greece crisis which has stoked fears about a potential default and ultimately withdrawal from the Eurozone as this could pose a threat to our diamond sales. Meanwhile Chinese growth has been fragile with recent GDP figures coming short of expectations. We could see the People Bank of China heading the direction of starting a quantitative easing scheme in order to steer growth.”
However, Motswedi Securities analysts emphasise that the Water and Electricity sector remain a major concern as power and water supply particularly in Gaborone, the capital city remain a challenge within the country.
“The central bank recently reduced the bank rate by 100 basis points to 6.5% in line with the downtrend of our inflation. We expect the lower rate to boost economic growth and driving the Finance & Business Services sector which contributes the 4th largest weight to Botswana GDP,” concludes the report.
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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.
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”