Botswana Holds Off Unions, Keeps Top Africa Credit Rating, Moody’s Says
Botswana’s refusal to give in to a two-month strike by government workers shows it is committed to spending cuts, helping the nation maintain the highest credit rating in Africa, Moody’s Investors Service said.
Moody’s, which has a negative outlook on the A2 rating, hasn’t considered a downgrade of the world’s biggest diamond producer, Kristin Lindow, a sovereign credit analyst, said in an interview in Johannesburg on June 9.
Teachers, nurses and other state workers agreed to suspend the strike a day after the comments. Botswana’s government has refused to ramp up wages after a slump in diamond demand pushed the fiscal deficit to 12 percent of gross domestic product in the year through March 2009. Finance Minister Kenneth Matambo pledged on Feb. 7 to bring the budget into balance by 2013.
The attitude to the strike “signals to us that the government is very serious about its budget strategy,” Lindow said. “The easy thing would be to give in.”
Botswana has traditionally run budget surpluses, giving it a credit rating a level above neighbor South Africa, the biggest economy on the continent.
The government has pledged to narrow the deficit to 6.3 percent this year, limiting pay increases to state workers this year to 3 percent, compared with the 12 percent demanded by unions, down from an initial request of 16 percent.
The strike was marred by violence as the government fired workers and said it wouldn’t pay striking employees. Police fired tear gas to disperse protesting workers in the capital, Gaborone, on June 9, according to Justin Hunyepa, executive secretary of the Botswana Secondary Teachers Union.
Botswana’s debt levels are still low enough for the southern African nation to retain a credit rating in the A category, Lindow said. Government debt, which is forecast to increase to 19 percent of GDP in the year through March 2012 from 4.9 percent in the 2007 fiscal year, will probably ease to 18 percent next year, according to Moody’s.
South African debt is forecast to climb to 39 percent in the year through March 2014 from 31 percent in the past fiscal year, according to the National Treasury. Portugal’s debt is 93 percent of GDP, Spain’s is 80 percent and Germany’s is 83 percent, according to European Union data.
“The public finances are so strong in Botswana,” Lindow said. “When we put a negative outlook, we weren’t clear how long it would be before the finances come back into balance. They were eating into their assets. That’s leveled off now and they’re no longer drawing down reserves at the pace they were.”
The yield on Botswana’s 91-day Treasury bill has been little changed this year, reaching 6.64 percent at the central bank’s June 7 auction, from 6.61 percent on Jan. 4. The yield narrowed from 7.15 percent a year ago. The pula has gained 1.2 percent in the past six months, trading at 6.51042 per dollar as of 9:14 a.m. in Gaborone.
The International Monetary Fund said on June 1 that Botswana needs to reduce the size of its wage bill and make the public service “leaner and more efficient.” Rising wage costs may also add to pressure on inflation, which eased to an annual 8.2 percent in April, the statistics office said on May 13.
Botswana’s economy rebounded last year, expanding 9.4 percent, following a 3.7 percent contraction in 2009, as mining output recovered, Moody’s said in a report on June 8. Economic growth will probably ease to 6.3 percent in 2011 and 6.1 percent in 2012, according to Moody’s.
“They’ve been hit hard by the crisis, but they’ve bounced back,” Lindow said. “They have ambitions to reduce very substantially the size of spending relative to GDP. That’s what we’re trying to ascertain, whether that will indeed happen and how soon.”
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