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Moody’s maintains A2 rating for Botswana

The annually credit rating indicator by American company Moody's Investors Service has indicated that Botswana retains the A2 rating for both foreign and domestic bonds together with the stable outlook.

Botswana's central bank on Wednesday sounded upbeat on the stable rating reflecting the continuous improvement in the government's fiscal position.

“Given the healthy financial position and in an environment of political and financial stability, risks that could put renewed pressure on the ratings are judged to be low. Consequently, Botswana's sovereign credit rating has been maintained at A2,” said Andrew Sesinyi, head of communications at  Bank of Botswana  (BoB).

Moody's A2 rating is based on an assessment that balances potential weaknesses arising from the country's middle-income status and the small size of the economy against strengths such as the sound policy framework and effectiveness of government.

The assessment emphasis is strong financial position of the government, resulting from prudent fiscal policies that compare favorably with other resource-rich, developing economies.

Moody’s said the Government of Botswana (A2 stable) benefits from its robust balance sheet supported by a low debt burden and the country's strong net external credit position. However, the country's small economy remains heavily dependent on the diamond industry, a key credit weakness.

“The most important driver behind Botswana's rating is its very high fiscal strength, as illustrated by a track record of prudent fiscal policies and effective consolidation measures, which should favour surpluses going forward,” says Aurelien Mali, Moody's Senior Analytical Advisor- Africa.

Furthermore, Botswana's sovereign wealth fund, the Pula Fund, adds a significant buffer against shocks and shortfalls in government revenue."

According to Moody's, the government has built up a track record of fiscal discipline and compliance with NDPs, with results from fiscal year2013-14 showing a fiscal surplus of around 5.6% of GDP, significantly above the previous estimate of 1.0% of GDP. The trend marks a sharp contrast from 2009, when Botswana registered a budget deficit of 12.3%.

Furthermore, as a result of Botswana's rapid fiscal consolidation, general government debt is set to reach 17.4%of GDP in 2014, well below the peak of 20.1% in 2011. Debt levels have averaged a low 18.6% of GDP in the past five years, and Moody's expects that the debt levels will continue to decrease for the foreseeable future.

Moody’s report says, a key vulnerability for Botswana is the economy’s high reliance on the diamond industry, which makes it highly susceptible to shocks. Despite efforts to diversify the economy, the mining industry's share of gross value added remained high at around 25% in 2013.
“While Botswana's position as a leading diamond producer is a source of strength for the country, the fact that diamond exports, both rough and polished, comprised 87% of total exports in2013 in dollar terms, means that economic activity, exports growth and foreign exchange generation are highly correlated to the fortunes of the diamond industry,” stated the report.

The American investors advised that, although the Botswana's finite diamond resources are now estimated to extend to 2050 with the necessary investment in existing mines, economic diversification will still become increasingly crucial to preserving the country's economic strength.

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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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