Botswana’s current account deficit will shrink from an estimated 10.1 per cent of GDP in 2020 to 6.7 per cent of GDP in 2021, Fitch Solutions forecasts. This revision is 1.5 percentage points less than the previous forecast of 8.2 per cent.
According to Fitch Solutions, this revision reflects sluggish import growth in early 2021, as the COVID-19 pandemic and associated mobility restrictions short-circuited a more meaningful uptick in domestic demand.
Data released by Statistics Botswana reveals that the trade balance moved from a deficit of BWP4.4 billion in Q1 2020 to a surplus of BWP448.1 million in Q1 2021.
Furthermore, this narrowing deficit will be buoyed by export growth. Export of goods is forecast to increase by 16.0 per cent over the year, the global economic recovery begins boosting demand for luxury and discretionary items such as
As a major exporter of diamond in the sub-Saharan Africa region, diamonds account for over 90.0 per cent of Botswana’s exports. Expectations are that the sector will have a positive year. According to Fitch Solutions, diamond production will recover from an estimated 20.0 per cent decline in 2020 to growth of 25.0 per cent in 2021. Additionally, Botswana will benefit from a stronger external demand including other recent developments.
According to Fitch Solutions, the recovery in import will be muted. Forecasts show that imports will rise by 2.7 per cent in 2021. This increase reflects our forecasts for real GDP to rebound from an estimated 10.7 per cent contraction in 2020 to growth of 7.4 per cent in 2021. Also, supporting and improving economic confidence will boost imports, particularly in H2 2021 as progress on vaccinations increases and Covid-19 restrictions are gradually eased.
Current Account deficit to further decline in 2022
Furthermore, the research firm indicates that imports of capital goods will also rise amidst increased investment in the mining sector. Nevertheless, given that there is only a partial economic recovery in 2021, import growth will remain comparatively weaker than export growth.
Accordingly, Fitch Solutions forecasters are of the view that the current account deficit coming in at 5.0 per cent of GDP in 2022, as against a 6.4 per cent forecast previously. This reflects a situation where the diamond and tourism sectors will strengthen further in 2022.
Also, diamond production will rise by a further 5.0 per cent in 2022, an impressive outturn from a base-effects perspective given strong output growth the previous year. Against this backdrop, goods exports is forecast to rise by 10.0 per cent in 2022.
Additionally, a recovery in the tourism sector will also help to narrow the current account deficit, by boosting service exports. Fitch Solutions expect that domestic vaccine rollout will have progressed to the extent that the tourism sector can re-open more fully.
However, Fitch Solutions motes that a more significant narrowing of the current account deficit will be prevented by recovering domestic demand and goods imports in 2022.According to forecasts, real GDP will grow by 5.9 per cent in 2022 while economic conditions normalise as impact of the Covid-19 pandemic fades, boosting import demand. Import is forecast to grow by 4.2 per cent in 2022.
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