Botswanas financial sector remains stable and resilient to support investment and business between banks, despite the rise in the price of fuel and food commodities, says newly appointed Governor of Bank of Botswana (BoB), Mr Cornelius Dekop.
Mr Dekop who was talking to the media recently, said as long as inflation patterns were kept within the Banks medium-term objective range of 3 6 percent it was unnecessary to consider the use of unconventional monetary policies, such as negative interest rates, in response to any potential economic slowdown or crisis.
Mr Dekops assertion was backed by the latest sovereign credit rating for Botswana by Moodys Investors Service (Moodys).
The ratings agency affirms the Government of Botswanas long-term local and foreign currency issuer ratings at A3 for 2023 and maintains a stable outlook. According to Moodys, the ratings are underpinned by the countrys low debt levels, and its robust institutional frameworks and governance strength, balancing economic concentration in mining and related activities, as well as very low susceptibility to political, liquidity and banking-related risks.
The rating agency also indicates that the stable outlook reflects balanced risks premised on expectation that the demand for Botswanas diamonds will remain strong despite a softened global outlook for diamond prices.
However, Moodys observes that the country is exposed to fiscal shocks given the depletion of fiscal buffers. Notwithstanding, the agency notes that continuing strong governance and robust institutions support Botswanas capacity to respond to shocks despite the decreased fiscal buffers.
Further, Moodys indicates that a rating upgrade can occur if Botswana improved resilience to economic shocks, supported by higher buffers and reduced vulnerabilities of its budget structure to sudden declines in the Southern African Customs Union (SACU) and mineral revenues.
Additionally, a rating upgrade may be achieved if the country reduced economic and fiscal reliance on the mining sector, supported by efforts to boost economic diversification and improve the business environment, as well as a successful implementation of the governments development agenda without a marked increase in the debt burden.
The agency says on the other hand, a rating downgrade may arise in the event of a deterioration in Botswana's fiscal metrics beyond current expectations because of difficulties in implementing fiscal consolidation, following the surge in development spending.
A significant increase in financial support to state-owned enterprises, or a markedly weaker growth outlook may also lead to a downgrade. The rating affirms the countrys general good economic performance and management, reinforcing the need to maintain strong institutions and policy frameworks that deliver macroeconomic stability, says Moodys.
The agency underscores the importance of ensuring traction of ongoing economic structural transformation and policy reforms by Government. It observes that these are necessary to accelerate economic diversification and industrialisation, rebuilding of fiscal buffers and, overall, economic resilience. Ends
Source: Windhoek Observer
Author: Hertta-Maria Amutenja
