Standard & Poor's Ratings Services has affirmed its 'A-' long-term and 'A-2' short-term foreign currency sovereign credit ratings on the Republic of Botswana and on the Bank of Botswana, the country's central bank.
"We also affirmed the 'A' long-term and 'A-1' short-term local currency sovereign credit ratings on Botswana and its central bank. The republic's 'A+' transfer and convertibility assessment is unchanged. The outlooks on Botswana and the Bank of Botswana are stable," the rating agency said. It said the affirmation reflects Botswana's strong public sector balance sheet, even though this recently deteriorated. It also reflects its well-managed minerals-based economy, and long record of political stability. These factors are somewhat offset by the country's narrow economic base, which is vulnerable to shocks; heavy reliance on diamond sector performance, despite efforts to diversify; fiscal challenges; and still-significant development needs. "Botswana's stable politics, track-record of prudent macroeconomic policies, and high level of transparency are strong by emerging market standards. However, key structural credit constraints are the country's narrow economy, together with income levels that are amongst the lowest in the 'A' category, high unemployment, and the impact of the HIV/AIDS pandemic. "Botswana is the world's top producer of diamonds and the diamond industry remains the country's economic locomotive. Abundant diamond resources, well-managed and exploited, and a social-democratic-style welfare state, have helped Botswana to develop from one of the world's poorest countries to a middle-income country with GDP per capita of about $7,500 in 2010. "The global downturn hit Botswana hard, as the country's key commodity markets, in particular the diamond market, contracted sharply and external demand slumped. But since mid-2010, the market has rebounded sharply. Real GDP contracted by 4.8% in 2009, but expanded again by an estimated 7.2% in 2010. Our projections indicate that it should remain fairly strong in fiscal years 2011-2013, provided that the recovery in the global demand for diamonds continues. "The stable outlook balances the fiscal difficulties the government faces with a strong public sector external balance sheet. The rating could come under pressure if the government suffered further fiscal slippage and did not meet its consolidation plans, due to weaker than anticipated revenues or to higher than forecast expenditures, which could lead to greater and more rapid dissipation of asset buffers. "Botswana's creditworthiness could improve if reforms are implemented more quickly, dependence on mining continues to decline, and private sector development broadens. However, we do not expect this to be achieved within the current forecast period," S&P said.
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