Loss making parastatals bog downgraded Botswana

Kimberley Diamonds in Botswana

from ODIRILE TOTENG in Gaborone, Botswana
GABORONE, (CAJ News) AN economic slump, magnified by the downgrading of Botswana’s long-term local and foreign currency ratings, has made it imperative for the government to diversify its revenue base and stop financial commitments that are draining state coffers.

Such obligations emptying the public purse include some state-owned enterprises (SOEs) beset by poor financial performance.

Botswana has more than 40 SOEs.

The Southern African country has suffered a major blow after the ratings agency, Moody’s, downgraded its long-term local and foreign currency ratings.

The downgrade is from A2 to A3.

“The downgrade to A3 reflects the deterioration in fiscal strength exacerbated by the shock induced by the coronavirus pandemic,” Moody’s explained.

Analysts noted that this past year, Botswana’s fiscal buffers have been eroded, primarily due to a reduction in mineral revenue.

This reflected an approximate 60 percent decline in the 2020/21 fiscal year, and the accelerated reduction of the government’s foreign exchange reserves in the Government Investment Account.

Rand Merchant Bank (RMB) stated that the pandemic exposed structural limitations in Botswana’s growth profile, characterised by the large presence of the public sector and exposure to fluctuations in global demand for diamonds.

Africa’s 22nd largest economy is overly reliant on the special stone.

Diamonds account for 15 percent of gross domestic product (GDP) and around 90 percent of exports.

Botswana’s economy contracted by 7,9 percent in 2020.

Nonetheless, Moody’s expects the economy to rebound to a level of 6,2 percent year-on-year, mainly driven by a recovery in the mining industry and gradual normalisation of domestic economic activity.

RMB economists, Daniel Kavishe and Neville Mandimika, forecast a rebound of 4,8 percent in 2021.

“In the long term, Botswana will have to implement structural reforms, such as those outlined in the Economic Recovery and Transformation Plan (ERTP), capable of ensuring a more balanced growth profile, generating diverse revenue and rebuilding fiscal buffers,” they jointly stated.

The Botswana Stock Exchange (BSE) believes as part of reforms to revitalize the economy, the government of President Mokgweetsi Masisi must do away with ineffective and unmaintainable financial commitments, including SOEs.

“The poor financial performance of some SOEs continues to deplete government coffers,” lamented Thapelo Tsheole, the BSE Chief Executive Officer.

Among the leading loss-makers recently are Botswana Agricultural Marketing Board, Botswana Post and Botswana Power Corporation.

In his February budget speech, Dr Thapelo Matsheka, the Minister of Finance and Economic Development, hinted at the closure of perpetual loss-marking parastatals, as bailing them out was becoming unsustainable.

“The prospect of the privatisation of certain parastatals is one we anticipate, with hopes that these entities would list on the Exchange as a way to corporatize and ensure sustainable growth,” he added.

According to the BSE chief, empirical research has proven that SOE listings can provide government with a substantial revenue source.

The impact could even be greater where listings were complemented with sector reforms that allow governments to reduce their financial support provided to those companies, Tsheole added.

He meanwhile noted the pessimism on the economic prospects.

“As this year unfolds, against the backdrop of the pandemic and the economic slump, economic indicators seem to suggest that things are due to worsen before they get better,” Tsheole said.

The government has proposed a development budget of P14,75 billion (US$1,366 billion) for the fiscal year 2021/2022.

This will be dedicated to restoring the economy through initiatives underpinned by the National Development Plan and the Economic Recovery and Transformation Plan.

– CAJ News

 

 

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