Trim diamond exports dependency - report
Lack of traction in expanding the export base has negatively affected the country’s balance of payments ( BoP) over the past five years resulting in escalating deficits.
In the latest special research bulletin on external demand released by the central bank, it indicates that stagnant export diversification and competitiveness between 2015 and 2020 has resulted in a consecutive deficit from P4.1 billion to P20.1 billion.
Prior to the consecutive deficit era, the local economy recorded favourable overall balance of payment from 2005 to 2014, except during the periods 2009- 10 and 2012- 13, when the rate of increase in imports significantly exceeded that of exports, resulting in deficits. Researchers Baby Mogapi and Karabo Badirwang in the Bank of Botswana’s research paper dubbed Assessment of External Sector Developments in Botswana and Policy Implications highlighted that foreign exchange reserves have been on a downward trajectory in the latter part of the review period, as a result of drawdowns of the government portion of the foreign exchange reserves, represented by the Government Investment Account ( GIA) to finance budget deficits, as well as stimulate the economy. “Furthermore, both the overall level of foreign exchange reserves and balances in the GIA were particularly negatively affected by the COVID- 19 induced trade shock and consequent economic contraction in 2020,” the researchers said. The analyst said the observed trend on the current account has been dependent on diamond exports, which is largely influenced by global demand and diamond prices unrelated to exchange rate movements. “Going forward, however, current account position should be made less dependent on the diamond market to cushion the economy and preserve foreign exchange reserves”. In addition, public debt rose significantly in the recent past, following the 2008/ 09 global financial crisis.
However, the country’s debt service matrices and overall sovereign debt level have been relatively prudently managed, remaining well below the country’s statutory maximum threshold of 40 percent of GDP, during and in between the two major global recessions, 2008- 09 and 2020.
“Notwithstanding this performance, it is projected that both domestic and external public debt, in absolute terms, and as a percentage of GDP, will increase to finance the budget deficits related to the COVID- 19 expenditures,” the researchers said. Mogapi and Badirwang added that the evident deterioration in key macroeconomic and external sector indicators suggest a need for a reappraisal of the development or growth model and related policy mix to build resilience, for better absorption of risks of episodic and high impact shocks, as well as promote the country’s transition to a high- income, consistent with the Vision 2036 aspirations. The 2020 IMF Article IV Mission Report strongly advocated for a transition from a resource- intensive and government- led model to an innovative private sector and export- driven approach. “The advent of COVID- 19, including the adverse impact and related identification of opportunities, reinforce the imperative to refocus strategy in order to maintain the sustainability of the balance of payments and, in general, external sector performance,” the researchers said.