S&P expects 8.5% growth for Botswana
Projects budget surplus in three years
S&P, one of the world’s leading credit ratings agencies, expects the local economy to grow by 8.5 percent this year, rebounding from its COVID-19 recession last year on the back of stronger diamond production and improvements in the broader mining sector.
Over the past weekend, S&P lifted its view on Botswana’s outlook to stable from negative again citing stronger diamond output and the economic rebound from the pandemic recession.
The rating agency’s forecast for local growth is softer than the government’s expectations of a 9.7 percent bounceback and the International Monetary Fund’s projection of 7.5 percent growth.
In their analysis, S&P researchers said the mining sector would underpin the economic recovery, with diamond production expected to return to normalised levels of up to 24 million carats this year, from last year’s output of 17 million carats.
“We estimate prices will recover to pre-pandemic levels this year, following a sharp decline of over 20% last year,” the researchers said. “Our assumptions reflect sustained global demand in the US, China, and India, and the restocking needs to be driven by the opening of retailers.” S&P said in addition, the recent commissioning of Khoemacau Copper Mine and the development of another in the medium term, would also support the country’s emerging production capacity. Sandfire Resources, an Australia Stock Exchange-listed group, is developing a $259 million (P2.9 billion) copper mine 80 kilometres from Gantsi on the Kalahari Copperbelt.
The mining sector contracted by 26.2% in 2020, as the pandemic closed global borders and weakened demand in markets for key local exports such as diamonds, soda ash and coal. Mining continued to weaken in the first quarter of the year, but has since picked up according to reports coming out of producers such as De Beers.
S&P researchers said the rosier economic output would be reflected in improved fiscal balances for government, where the deficit is expected to narrow this year and next before recording a small surplus in 2023.
The smaller deficit this year will also be helped by interventions made by the government in the budget. “The government has created fiscal space by reallocating resources from projects not yet started to vaccine procurement.
“Public salary adjustments beyond inflation are unlikely, following the 10% adjustment during the past two fiscal years. “Overall, we project that the fiscal deficit will narrow to four percent in fiscal 2021-2022 to 2022-2023 before turning into a small surplus of one percent in fiscal 2024-2025,” S&P stated.
The Ministry of Finance and Economic Development recently revised its expectation of this year’s deficit up to P7.8 billion from P6 billion, representing 3.6 percent of Gross Domestic Product from three percent.