Bank of Botswana (BoB) says the structural reforms that are currently being implemented would potentially make the economy more resilient and less susceptible to both domestic and external shocks.
Responding to fielded questions this week regarding the recently released Moody’s Report, BoB said: “The economy is expected to perform better in 2018 and 2019, compared to 2017, in the context of a robust global market for exports. Meanwhile, among other commodities, Botswana imports oil products, which are important inputs to production. Therefore, a substantial increase in international oil prices (necessarily transmitted to domestic fuel prices) could increase the cost of production, hence inflation, with an adverse impact on domestic economic activity and welfare.”
The bank confirmed that the country will continue to rely on mining, which is projected to grow at a rate of 3.1 percent in both 2018 and 2019.
“The significant dependence of the Botswana economy on the mining sector specifically, diamond mining, means that the country remains vulnerable to external shocks. Any weak performance of the global economy and in particular, the slowdown in economic growth in countries that constitute Botswana’s markets for rough diamond exports, as well as the decline in diamond prices, negatively affects domestic economic performance. However, over time with structural adjustments, enhanced support for industries and economic diversification, relatively weak performance of the mining sector in the recent past has been compensated for by the non-mining sector, which remained resilient; resulting in sustained positive growth rates since the 2007/08 global financial crisis. Notably, in the period from 2014 to 2017, where overall real GDP growth remained positive, driven by the non-mining sector, when the mining sector contracted. However, the trend decline in long term growth rates evidences a decline in potential output growth,” the bank said.
On the issue of what the Government was doing to ensure the country’s stable outlook, BoB stated that Government’s continued commitment to prudent fiscal stance.
The Bank, however, warned that deterioration, either real such as erosion of fiscal reserves or arising from negative sentiment, would negatively affect both the ratings and the outlook.
With regard to developments in South Africa, the Bank said since the country remains Botswana’s largest trading partner involving strong economic ties and therefore, any developments that undermine economic performance in South Africa have the potential to spill over into Botswana.
The bank further warned about the looming effects of extended drought period.
“The expected El Niño weather conditions in the 2018/19 ploughing period in the Southern African region could adversely affect crop production, or output in the Agriculture sector in general and potentially modest upward pressure on food prices in the region,” said the bank.