Tuesday 15, May 2018 by Matthew AmlĂ´t

S&P: Botswana 'A-/A-2' long- and short-term foreign and local currency ratings affirmed

On April 27, 2018, S&P Global Ratings affirmed its 'A-/A-2' long- and short-term foreign and local currency sovereign credit ratings on Botswana. The outlook is stable.

S&P also affirmed our 'A-/A-2' long- and short-term foreign and local currency sovereign credit ratings on the Bank of Botswana, because we equalise them with our ratings on the sovereign.

The stable outlook reflects the agency’s view that production levels in Botswana's diamond sector will remain relatively robust, which will in turn support government and export revenues and economic growth over the next 12-24 months.

S&P stated that they could lower the ratings if the fiscal position became significantly weaker than we currently assume, either due to underperformance in the diamond sector or a larger increase in fiscal spending that results in larger fiscal deficits than we currently assume.

S&P could also consider lowering the ratings if Botswana's external performance deteriorated markedly, for example, via unexpected changes to transfer amounts or frequency from the Southern African Customs Union (SACU) as part of the countries' 108-year-old customs union agreement. These currently exceed 10 per cent of Botswana's GDP.

S&P do not expect to raise the ratings in the next two years.

The ratings are supported by Botswana's relatively strong institutions, strong external balance sheet, low government debt burden, and reasonably well-managed minerals-based economy.

The ratings are constrained by the country's narrow economic base, which still relies heavily on the diamond sector and is vulnerable to external shocks, despite efforts to diversify.

S&P also view monetary policy effectiveness as limited by the crawling peg exchange rate arrangement.

  • Institutional and Economic Profile: Middle income economy with a reasonably well-managed diamond sector; limited economic diversification exposes Botswana to external shocks
  • Relatively strong institutions have helped develop Botswana into a middle-income economy with a well-managed diamond sector.
  • We expect the upcoming parliamentary elections in October 2019 to continue the smooth transitions of power Botswana has experienced since 1966.


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