A greater than anticipated deterioration in the global economy would likely have a detrimental effect on demand for diamonds, posing significant risks to real GDP growth forecasts as well as projections for Botswana’s current and fiscal accounts, according to a new report by Business Monitor International (BMI).
Botswana Country Risk Report published Tuesday also warned that the government’s politically sensitive privatisation agenda has the potential to ignite tensions, bolstered by increasingly influential trade unions in the southern Africa country.
“Although we expect conditions to improve over the remainder of 2013, recent developments have prompted us to make slight downward adjustments to our real GDP growth forecasts for 2013 and 2014 to 4.6 percent and 5.0 percent respectively,” said BMI.
“In particular, the impact of a fragile external environment on the country’s all-important diamond sector will continue to weigh on headline growth. Looking ahead, our outlook for Botswana’s economy remains one of solid, but constrained growth,” the firm said.
Weaker than expected growth data for the first quarter indicated that demand for diamonds – the pillar of the economy – remained muted in line with sluggish global growth.
In BMI’s view, inflationary pressures in Botswana will ease over the coming quarter due to the effects of a slackening global economy, lower commodity prices and a subdued domestic demand picture.
With price pressures continuing to be largely transient in nature, the firm forecast that conditions would remain supportive of the more accommodative stance adopted by the Botswana authorities in recent months.
“The next few years will arguably be among the most challenging faced by the ruling Botswana Democratic Party (BDP) since it came to power in 1966.
“Despite signs that a shift in the country’s political landscape may be underway, we maintain that a comfortable victory for the BDP in the 2014 election remains by far the most likely outcome,” said BMI.
Besides a weaker outlook for Botswana’s two biggest sources of income – diamond revenues and the Southern Africa Customs Union (SACU) receipts, the report noted some key risks posed by ongoing revisions to the national accounts estimates.
Amid ongoing efforts by Statistics Botswana to more accurately portray the size and structure of the economy, the report said, GDP estimates remained subject to frequent and often notable adjustments.
“Although we do not anticipate a return to the large scale strikes seen in the first half of 2011, the risk of sporadic outbreaks of protests and public unrest remains a realistic possibility, particularly over the medium-to-long term,” it added.