Botswana wary of weak diamond sales amid tight budget

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Mho Tebele

Gaborone - Botswana is concerned about weak diamond sales which the Southern African nation says pose a risk to its mineral revenue and the 2020/21 national budget.

 This was revealed in the country’s budget strategic paper discussed by a high-level delegation comprising representatives from government and the private sector in the capital Gaborone last week.

The discussion of the budget strategy paper which guides the 2020/21 national budget comes against the backdrop of reports showing that Botswana’s total exports amounted to P5, 637.8 million during the month of June, a 6.8 percent decrease compared to the previous month.

The decline was attributed to the 7.4 percent drop in diamond exports. In recent Sightholder sales, De Beers rough diamond sales have plummeted, leading to a decline in the value of diamond sales. The same report states that the latest sales from De Beers’ Group Sightholder’s seventh cycle sales amounted to US$270 million – a far cry from the US$500 million recorded during the first cycle of sales in January.

According to the budget strategy paper, the fiscal position faces potential headwinds. It states that “weak diamond sales pose downside risks to mineral revenues, which remain low following the decision by Debswana to finance the Cut 3 and Cut 9 projects from the dividends.”

It also notes that “risks to the revenue outlook take into account the continued weak market for rough diamonds which has affected sales through De Beers Global Sightholder Sales.”

 According to the document, specific vulnerabilities are evident in the trade, hotels and restaurants sector, particularly the wholesale sub-sector.

“This is due to weak global demand which has affected sales of rough diamonds during the first half of 2019. Rough diamonds sales fell by well over 50 percent during the sixth Debswana Global Sightholder sales cycle, following a 16 percent drop in the second quarter of 2019,” the document says.

 It says the decline in diamond sales has already started to weigh down on output, as Debswana adjusted mining production downwards during the second quarter of the year in line with the weaker demand for rough diamonds. Production decreased by nine percent to 5.7 million carats during the second quarter of the year. This was also exacerbated by a decrease in production by 23 percent at Orapa mine in Botswana to 2.5 million carats, following a planned plant shut down.

“Should the situation persist, it may pose further risks to the domestic revenue outlook, as it would affect the growth in mining value added and a spill over to other sectors that depend on mining activities such as manufacturing and finance business services, which include diamond cutting and polishing as well as sorting and valuation,” says the document.

Meanwhile the document revealed that the negative fiscal outlook is exacerbated by increased recurrent pressures arising from the need to cater for the recent salary adjustments as well as other expenditure pressures arising from investment in critical infrastructure such as those for water and electricity.

“This is expected to raise the recurrent budget in the years ahead, while at the same time, crowding out development spending necessary for growth. Suffice to note that the expected decline in revenues amidst rising expenditure pressures give rise to budget deficits, which in turn, need to be financed by either borrowing or drawing down on government cash reserves; the latter which has experienced significant deterioration over the past decade,” reads the document.

 This, the document says, has implications on the country’s ability to sustain and cushion the economy against any future external shocks, debt levels, as well as, to meet its import obligations and credit worthiness.

“Recent drought episodes and adverse weather conditions not only in the SADC region, but also domestically, pose a threat to the agricultural sector and food prices generally. From a policy perspective, any upside risks to the inflation outlook, could therefore lead to sudden tightening of financial conditions, thereby constraining monetary policy’s space to boost domestic economic activity,” the document says.

As part of fiscal consolidation, government said it has taken a deliberate decision to implement a number of policy shifts going forward. Some of those which will be undertaken during the forthcoming financial year include the following; reinforcing moratorium on new parastatals and develop stringent criteria in cases deemed necessary, as well privatising some with the intent of attaining significant cost reduction and inefficiencies.

The government said it would also refrain from building new offices and housing units, especially in major towns and villages.

It would also rationalise the civil service. This will include, among others, the freezing of creation of new manpower positions in the coming financial year, but instead ministries, departments and agencies will be encouraged to rationalise their existing establishments.

 

 

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