Budget deficit: Brace for the worst

SHARE   |   Monday, 31 August 2015   |   By Kabelo Adamson
Finance Minister, Kenneth Matambo Finance Minister, Kenneth Matambo

International Credit rating firm Moody has warned that Botswana’s anticipated 2.6 percent budget deficit will be much bigger than local finance authorities say.
The credit rating firm said the deficit could turn out to be wider due to the downturn in the diamond market. Last month De Beers announced that it has cut its full-year production goal to 29 million carats from an earlier target of 30 million to 32 million carats.
Minerals contribute almost 40 percent of Botswana’s total revenue and around 85 percent of exports and with the diamond industry, which is the major contributor to the mineral revenue, going through a challenging period due to commodity prices, Moody’s project wider budget deficit for Botswana.
“We see risks for an even more pronounced deficit because of a prolonged downturn in world diamond demand specifically tied to China’s economic rebalancing and lower luxury spending,” Moody’s said.
Last week the Ministry of Finance and Development planning said in Budget Strategy Paper (BSP) for the 2016/17 financial year that a growth rate of 2.6 percent is forecast for 2015, underpinned by the expected decrease in demand for diamonds in the global market. The ministry blamed the country’s continuous reliance on diamonds whose demand and prices are subject to global fluctuations as the downside risk of these projections.
A higher growth rate of 4.9 percent acco4rding to the BSP is projected for 2016. However, even with the deficit looming, the country may not face serious implications as it may dig from its sovereign wealth which seats above P80 billion.
Head of Research at a local stock broking firm, Garry Juma, said the country’s reserves come in handy during such times like when there is a budget deficit.
He explained that reserves are meant to cushion the economy in case it get exposed to external factors, particularly in a mineral revenue based economy such as Botswana and when such times arises, the deficit can be funded from the foreign exchange reserves.
Figures from Statistics Botswana (SB) show that from January until June this year, the country experienced mixed fortunes in terms trade balance on international merchandise trade.
The month of June recorded the highest deficit of P603.7 million as the value of imports increased by 22 percent to reach P8 billion. On the other side, exports for the same month were valued at P7.4 billion - a decrease of almost 14 percent from the previous month.
 



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