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Botswana Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Botswana will experience a slow economic recovery over 2017, largely driven by an uptick in tourism from Zimbabwe and South Africa and improving diamond production. The government will also support growth by implementing its Economic Stimulus Programme in an effort to diversify the economy. The Bank of Botswana has reached the end of its rate cutting cycle and will keep interest rates on hold in 2017, in line with the South African Reserve Bank. While inflationary pressures will remain low, price growth in Botswana will tick upwards slightly as the transport component of inflation picks up. Botswana's fiscal deficit will begin narrowing over FY2016/17 and FY2017/18, albeit gradually. While revenues from the mining sector will recover, increased government capital expenditure will keep the fiscal position in deficit over the next several quarters.

Botswana's sizeable current account surplus will begin to narrow over the months ahead, driven by rising capital imports as infrastructure investment picks up under the government's Economic Stimulus Programme. Export growth and Southern African Customs Union receipts will remain subdued on the back of low global demand for diamonds and sluggish growth in the region. The pula's peg to the South African rand and the IMF's Special Drawing Rights will see the currency depreciate over 2017 and 2018. While weakness in the basket currencies will add downwards pressure on the pula, the pace of depreciation will moderate significantly compared to recent years. Social unrest will remain relatively limited in Botswana, despite the significant economic headwinds facing the country due to faltering diamond production.

This comes as a history of legitimate electoral processes and the likely formation of a credible opposition coalition will provide citizens with the means to voice their discontent with the ruling Botswana Democratic Party in the 2019 elections and offer an outlet for discontent. Major Forecast Changes: We have revised our 2016 and 2017 economic growth forecasts downwards as we anticipate an even slower than initially anticipated for the recovery of the mining and the tourism sectors. While we expect a modest improvement in visitor arrivals, we have recently revised our growth forecast for Zimbabwe even further downwards and we anticipate that the tepid recovery of this key source market for visitors will temper gains. Meanwhile, the gradual recovery in commodity prices will offer only moderate tailwinds to the mining sector.

Table Of Contents

Botswana Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Improving External Demand Will Boost Growth 8
Botswana will experience a slow economic recovery over 2017, largely driven by an uptick in tourism from Zimbabwe and South Africa
and improving diamond production The government will also support growth by implementing its Economic Stimulus Programme in an
effort to diversify the economy
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS 9
TABLE: PRIVATE CONSUMPTION FORECASTS 9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Monetary Policy 10
Price Stability Will Justify Rate Hold 10
The Bank of Botswana has reached the end of its rate cutting cycle and will keep interest rates on hold through 2017, in line with the
South African Reserve Bank While inflationary pressures will remain low, price growth in Botswana will tick upwards slightly as the
transport component of inflation picks up
Monetary Policy Framework 12
TABLE: MONETARY POLICY FORECASTS 12
Fiscal Policy And Public Debt Outlook13
Recovering Mining Production Will Ease Fiscal Pressures 13
Botswana's fiscal deficit will begin narrowing over FY2016/17 and FY2017/18, albeit gradually While revenues from the mining sector
will recover, increased government capital expenditure will keep the fiscal position in deficit over the next several quarters
Structural Fiscal Position 14
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES14
TABLE: FISCAL AND PUBLIC DEBT FORECASTS 14
External Trade And Investment Outlook 15
Sizeable Surplus Set To Narrow 15
Botswana's sizeable current account surplus will begin to narrow over the months ahead, driven by rising capital imports as
infrastructure investment under the government's Economic Stimulus Programme picks up Export growth and Southern African
Customs Union receipts will remain subdued on the back of low global demand for diamonds and sluggish growth in the region
Outlook On External Position 16
TABLE: CURRENT ACCOUNT BALANCE FORECASTS 16
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 17
TABLE: TOP FIVE GOODS EXPORTS, AUGUST 2015 - JULY 201617
TABLE: TOP FIVE GOODS IMPORTS, AUGUST 2015 - JULY 2016 17
Currency Forecast 18
BWP: Basket Currency Weakness Will Drive Pula Depreciation 18
The pula's peg to the South African rand and the IMF's Special Drawing Rights will see the currency depreciate over 2017 and 2018
While weakness in the basket currencies will add downwards pressure on the pula, the pace of depreciation will moderate significantly
compared to recent years
TABLE: BMI CURRENCY FORECAST18
Contents
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 Index23
Domestic Politics24
Social Unrest Will Remain Contained Despite Discontent 24
Social unrest will remain relatively limited in Botswana despite the significant economic headwinds facing the country due to faltering
diamond production This comes as a history of legitimate electoral processes and the likely formation of a credible opposition coalition
will provide citizens with the means to voice their discontent with the ruling Botswana Democratic Party in the 2019 elections and offer
an outlet for discontent
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
Operational Risk 29
TABLE: OPERATIONAL RISK 29
Business Crime 30
TABLE: BUSINESS RESPONSE TO RISK IN BOTSWANA 30
Government Intervention 33
TABLE: BOTSWANA - BUSINESS TAXES 34
TABLE: PERSONAL INCOME TAX 35
Chapter 5: BMI Global Macro Outlook37
Global Macro Outlook 37
Austerity Has Peaked, But Populism Is Not Yet Policy 37
TABLE: GLOBAL ASSUMPTIONS37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 39
BOTSWANA - MACROECONOMIC DATA and FORECASTS 41

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