“Country given a ‘carrot’ and a ‘stick’”- Financial Expert
Moody’s Investors Service has released an update of Botswana’s 2017 sovereign credit rating, which reaffirms the rating of ‘A2’ for long and short-term bonds denominated in both domestic and foreign currency.
The update also projects a stable outlook, reads a statement from the Bank of Botswana (BoB) on the recent standing of country’s financial environment.
“However, the country has been given a ‘Carrot’ and a ‘Stick’,” says Certified Financial Planner, Investment Adviser for the SCI Group and BDO Auditors and Accountants, James Fern in an interview with The Voice Money.
Explaining his observations, Fern says “the ‘Carrot’ is that, in the medium term, our credit rating could be upgraded if we make progress in diamond beneficiation, and economic diversification.”
He notes that there is however, little evidence of economic diversification on the ground.
“The Botswana civil service has actively repelled foreigners over the past five years. If we don’t learn to accept foreign talent, we will never diversify our economy, or indeed grow the skills needed for Diamond beneficiation,” he observes.
For the ‘stick’ part, Fern explains that, in the near term, a substantial depletion of fiscal reserves and/or a rapid increase in public debt could lead to a downgrade.
“This is a warning for the country to balance its budget and not to spend the money it has built up too rapidly on projects that have little ongoing value, or on workers who don’t add value,” he says.
Projecting into the future, Fern said in 20 years time, Botswana will be starting to run out of diamonds and it’s at that point that the country needs to have an open, competitive economy with a well educated, skilled and hard-working population.
“Therefore Vision 2036 is much more critical than Vision 2016 was,” he advises on the grim outlook.
Checking former Moody’s ratings on Botswana’s Sovereign Credit Rating, The Voice Money has learnt that the rating has remained stable with A2 rating since 2009, after a negative rating in February 2010.
Fern explains that a “Sovereign Credit Rating” is an assessment of a country’s ability to repay its debts.
Well managed, stable countries have a high rating (the best is AAA), while unreliable countries have low ratings (the lowest being C).
The ratings are given by Credit Rating Agencies – the biggest are Standard & Poors, Moody’s and Fitch.
Fern adds that Botswana employs two of these Agencies to rate our ability to repay our loans.
“Botswana has in the past been regarded as a well managed country, and we currently have good foreign exchange reserves thanks to selling Diamonds for hard currency,” states Fern who continues that Botswana has managed government money carefully over the years, and hence Moody’s rating is A2 stable, compared to South Africa’s BAA3 negative.