International credit rating agency – Moody’s, says it forecasts that the Botswana economy will recover in 2021, with real GDP expanding by 6.2%.
Moody’s said the expansion will mainly be driven by the rebound in mining industry and gradual normalisation of domestic economic activity. Consistent with Moody’s forecast, the diamond sector – where Botswana is major player is reported to have been recovered in the first quarter of 2021 reaching the Pre-COVID-19 crisis sale level. Despite this recovery in the diamond sector, Moody’s says prolonged COVID-19 containment measures or a slow vaccine rollout could impede the pace of the recovery. At the same time, the agency cautions that the evolution of the pandemic will continue to influence the developments in the diamond market. Last week, De Beers disclosed that it would likely earn $440 million from diamonds sold in the third sales cycle – which ran from 22 March to 6 April. The estimated figure is lower than the second sales cycle that netted $550million and the first sales cycle which brought in $663 million.
Diamonds aside, the credit rating agency says Botswana’s long-term challenges are likely to become more acute in the absence of effective progress on economic diversification and improvement in the business environment.
“While the Government has reaffirmed its commitment to economic diversification with the adoption of the Economic Recovery and Transformation Plan (ERTP) presented in 2020, the mixed track record on implementing structural reforms suggests that progress will likely remain very gradual”, reads part of the Moody’s statement on the local economy.
In 2020, the cash strapped Botswana government put together an ambitious plan dubbed ERTP to keep the economy going. Through the ERTP, the Government seeks to boost the economy through expenditure and investments across all sectors of the economy. The plan, which will run from 2020/21 to 2022/23, is said to spearhead Botswana’s economic transformation by promoting a private sector-led economy anchored by exports and citizen participation. Economic advisors say the ERTP involves an accelerated development of facilitative infrastructure, support for increased agriculture and manufacturing output, growth of the creative industry, improving the business environment and accelerating regulatory reforms.
However, the plan requires at least P40 billion in government expenditure, a huge sum at a time when the country has been running deficits, with revenues expected to fall in the medium term.