Likely diamond decline weighs on Bots rating

JOHANNESBURG – Botswana’s stable and positive local and foreign currency bond ratings reflect its continued external and fiscal account surpluses, Moody’s Investors Service said yesterday.

But the southern African country’s ratings were constrained by the eventual peaking and decline of diamond output, possibly within the next two decades as well as a small market size, among other challenges, Moody’s said in an annual report on Botswana. Moody’s earlier this month raised the outlook on the diamond-rich country’s foreign currency ratings to positive from stable.The agency rates Botswana’s local currency bonds at A1 with a stable outlook.Moody’s said Botswana’s ratings were the highest currently assigned in Africa, a sign of its “extremely favourable” net assets position, external and fiscal surpluses thanks to government spending restraint, and improvements in diversifying the economic base.”The combination of increased output from the mining, manufacturing and infrastructure sectors and an added boost from government and financial services is expected to keep the economy growing at a relatively brisk pace in the next two years,” said Moody’s economist Kristin Lindow.Botswana’s growth rates have averaged at least eight per cent over the last two decades and the government is aiming for an average of five per cent annual expansion over the next three years.Earlier this year, President Festus Mogae said the country planned to increase beef and coal exports while cautiously expanding tourism to reduce reliance on diamonds, which generate half of government revenue and a third of gross domestic product.”In light of the specific risks posed by Botswana’s narrow economic base, recent gains in diversification within and outside of the mining sector mark an important inflection point in a positive direction for fiscal sustainability,” said Moody’s.But challenges remained in the form of unemployment, income inequality, and pockets of extreme poverty, compounded by the prevalence of the HIV-AIDS scourge.Nampa-ReutersMoody’s earlier this month raised the outlook on the diamond-rich country’s foreign currency ratings to positive from stable.The agency rates Botswana’s local currency bonds at A1 with a stable outlook.Moody’s said Botswana’s ratings were the highest currently assigned in Africa, a sign of its “extremely favourable” net assets position, external and fiscal surpluses thanks to government spending restraint, and improvements in diversifying the economic base.”The combination of increased output from the mining, manufacturing and infrastructure sectors and an added boost from government and financial services is expected to keep the economy growing at a relatively brisk pace in the next two years,” said Moody’s economist Kristin Lindow.Botswana’s growth rates have averaged at least eight per cent over the last two decades and the government is aiming for an average of five per cent annual expansion over the next three years.Earlier this year, President Festus Mogae said the country planned to increase beef and coal exports while cautiously expanding tourism to reduce reliance on diamonds, which generate half of government revenue and a third of gross domestic product.”In light of the specific risks posed by Botswana’s narrow economic base, recent gains in diversification within and outside of the mining sector mark an important inflection point in a positive direction for fiscal sustainability,” said Moody’s.But challenges remained in the form of unemployment, income inequality, and pockets of extreme poverty, compounded by the prevalence of the HIV-AIDS scourge.Nampa-Reuters