Botswana economy in worst contraction since independence

Finance Minister, Dr Thapelo Matsheka

The Botswana economy has recorded its biggest contraction since records began, officially entering a recession. The economy is expected to contract further this year in what threatens to be the country’s worst economic year.

Real Gross Domestic Product (GDP), which measures the total output of goods and services in the country at a specific period, plunged from P25 billion in the first quarter to P18.8 billion, reflecting a 24.8% drop in economic activity between June and August. On a yearly comparison, the GDP is down 24%. Both contractions reflect the biggest slump on record since Botswana gained independence in 1966.

Based on the current prices, the nominal GDP shrank by 27.3% between the first two quarters, dropping from the first quarter’s P50.7 billion to P36.8 billion, indicating a P13.9 billion loss between June and August when the country enforced strict COVID-19 containment measures. Although it has relatively low coronavirus cases, Botswana implemented a 48-day hard nationwide lockdown that ran from the beginning of April through to mid-May. The government later placed Gaborone, the nation’s capital and hub of economic activity, under lockdown for two weeks in early August.

“The poor performance of the economy was mainly due to the impact of measures that were put in place to combat the spread of the COVID-19 pandemic,” Statistician-General, Dr Burton Mguni said. 

“The deep contraction was attributed to the huge decline in real value added of Mining and Quarrying and Trade, Hotels & Restaurants industries by 60.2 and 40.3% respectively.”

With two successive quarterly falls, Botswana has officially entered into a technical recession, which happens when a country’s GDP falls in two consecutive quarters. In the first quarter, the GDP contracted by 0.8% from last year’s last quarter, and on a yearly basis, the GDP grew by 2.6% between March and May 2020, lower than the 4.2% growth in the same period last year. The economy’s historic drop further supports several forecasts that the economy will be in recession for the current year. Since the COVID-19 outbreak, the finance ministry and its agencies have made several revisions to the GDP, lowering their expectations in the face of gloomy forecasts. Late in April after the country implemented the first nationwide lockdown, the finance minister, Dr Thapelo Matsheka projected the GDP would decline by 13.1%, a sharp contrast from the projected growth of 4.4%.

This has since been revised to a contraction of 8.9%, steeper than the 2008 contraction during the financial crisis, when the economy shrunk by 7.6%, according to data compiled by Bank of Botswana. While the shrinking economic activity is largely attributed to COVID-19 containment measures, Botswana’s economic cogs have been grinding slowly, piling more pressure on the nation’s ballooning budget deficits and structural problems such as a poorly diversified economy and rising unemployment rate.

From 2010 to 2018, the GDP had an average growth rate of 3.7%, reflecting a gradual decline in economic growth over the 10 years. GDP growth further crawled to 3% in 2019, down from the 4.5%recorded in 2018. At these rates, Botswana’s economy is reportedly operating below potential output, which experts suggest ought to be above 6% for the economy to create much-needed employment.

The government has unveiled an Economic Recovery and Transformation Plan (ERTP) which seeks to guide economic activities post-COVID-19. To implement the ERTP alongside the remainder of the 11th National Development Plan (NDP 11), the government says it will need no less than P40 billion, with over 50% of the funds earmarked to plug budget deficits, which have since 2017 exploded to a cumulative P20 billion.

S&P Global Ratings (previously Standard and Poor’s) in late September changed Botswana’s economic outlook from stable to negative, following another negative outlook by another credit ratings giant, Moody’s in May. The bleak assessment was premised on expected higher pressures on the country’s economic, external and fiscal performance over the next two years, notably arising from the adverse impact of the COVID-19 pandemic, compounded by weaker diamond exports.


4 months ago

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