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Botswana Country Risk Report Q4 2016

  • August 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views


Botswana will see a gradual recovery in real GDP growth over thenext five years, supported by private consumption and fixed investment.However, a combination of sluggish mining sector exports andrising capital goods imports will widen the trade deficit, temperingthe extent of the growth.Low diamond prices will sustain pressure on Botswana's externalaccounts over the next year, as export revenues and inward investmentremain sluggish. However, a relatively strong reserve positionand an investor-friendly business environment will ensure thesedynamics do not become a lasting drag on the overall health of theeconomy.A benign outlook for inflation and a change to our monetary policyforecast for South Africa have led us to adjust downwards our forecastfor the key policy rate in Botswana in 2016. With inflation stable butcredit growth and confidence surveys low, the Bank of Botswanawill focus on supporting economic growth.Botswana's budget deficit will widen to the largest level in six yearsin 2016 as the government seeks to implement fiscal stimulus. Weforecast a smaller deficit than the government, as project realisationwill be low.The ruling Botswana Democratic Party will continue to dominatepolicymaking in the coming quarters, aided by forthcoming changesto the composition of the legislature and underpinning our viewfor policy continuity in the coming quarters. These changes to thelegislature will not be sufficient to head off fragmentation within theruling party during the 2018 handover of power from the currentpresident to an interim successor.The Botswanan pula will resume its depreciatory course beforeyear-end 2016, in line with our view for the South African rand tobounce off resistance. A sell-off in the rand, one of the currenciesthe pula is pegged to with a crawling exchange rate, will see thistrend continue through 2017, entailing some modest depreciation.

Table Of Contents

Botswana Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Key Risks.5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook 8
Sluggish Mining Sector Output Will Slow Economic Recovery..8
Botswana will see a gradual recovery in real GDP growth over the next five years, supported by private consumption and fixed
investment. However, a combination of sluggish mining sector exports and rising capital goods imports will widen the trade deficit,
tempering the extent of growth.
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: GOVERNMENT CONSUMPTION FORECASTS...10
TABLE: FIXED INVESTMENT FORECASTS..10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook.. 11
Delayed Project Implementation Will Keep Deficit In Check.11
Botswana's budget deficit will widen to the largest level in six years as the government seeks to implement fiscal stimulus. We forecast a
smaller deficit than the government, as we expect project realisation will be low.
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES.12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...13
External Trade And Investment Outlook 13
Economy To Readjust To Changing External Dynamics...13
Low diamond prices will sustain pressure on Botswana's external accounts over the next year as export revenues and inward
investment remain sluggish. However, a relatively strong reserve position and an investor-friendly business environment will ensure
these dynamics do not become a lasting drag on the overall health of the economy.
Outlook On External Position.. 14
TABLE: CURRENT ACCOUNT BALANCE FORECASTS...14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.15
TABLE: TOP 5 GOODS EXPORTS IN JANUARY 2016..15
TABLE: TOP 5 GOODS IMPORTS IN JANUARY 2016..15
Monetary Policy 16
A Further Rate Cut To Come16
A benign outlook for inflation and a change to our monetary policy forecast for South Africa have led us to adjust our forecast for the key
policy rate in Botswana downwards. With inflation stable but credit growth and confidence surveys low, the Bank of Botswana will focus
on supporting economic growth.
Monetary Policy Framework 17
TABLE: MONETARY POLICY FORECASTS..17
Currency Forecast 18
BWP: Depreciation To Resume By 2017.18
The Botswanan pula will resume its depreciatory course before year-end 2016, in line with our view for the South African rand to bounce
off resistance. Weak fundamentals in the pula's currency basket countries will see this trend continue through 2017, entailing some
modest depreciation.
TABLE: BMI CURRENCY FORECAST19
Chapter 2: 10-Year Forecast... 21
The Botswanan Economy To 2025. 21
Long-Term Prospects Still Positive.21
Despite ongoing efforts by the government to diversify Botswana's economy away from a heavy reliance on diamonds, we believe the
precious stone will remain the mainstay of the southern African country's economy over the foreseeable future.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.21
Chapter 3: Political Outlook... 23
SWOT Analysis. 23
BMI Political Risk Index... 23
Domestic Politics. 24
Constitutional Amendments Will Buoy Policymaking...24
The ruling Botswana Democratic Party will continue to dominate policymaking in the coming quarters, aided by forthcoming changes to
the composition of the legislature and underpinning our view for policy continuity in the coming quarters. That said, these changes will
not be sufficient to head off fragmentation within the ruling party during the 2018 handover of power from the current president to an
interim successor.
TABLE: POLITICAL OVERVIEW.24
Long-Term Political Outlook... 25
An Incomplete Miracle..25
Botswana's status as one of the most stable and politically progressive countries in Sub-Saharan Africa is likely to endure for the
foreseeable future. While we see the potential for political or social upheaval as minimal, over the next decade the government
will come under mounting pressure to address the country's extreme inequality as well as facing the prospect of a reinvigorated
opposition.
Chapter 4: Operational Risk... 29
SWOT Analysis. 29
Operational Risk Index 29
Operational Risk... 30
TABLE: OPERATIONAL RISK.30
Market Size And Utilities.. 31
TABLE: SUB-SAHARAN AFRICA - MARKET SIZE AND UTILITIES RISK32
Labour Costs 34
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE... 35
Chapter 5: BMI Global Macro Outlook... 39
Global Macro Outlook.. 39
Brexit To Hit Global Growth.39
TABLE: GLOBAL ASSUMPTIONS..39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...41
TABLE: MACROECONOMIC DATA and FORECASTS..43

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