Economic Analysis - Weak SACU Exports To Reduce Current Account Surplus - JUNE 2017

BMI View : Weak er SACU remittances amid low diamond prices and poor regional demand, as well as strong import growth will see Botswana ' s current account surplus narrow over the coming years . Nevertheless, the current account will remain in surplus and coupled with strong FDI inflows , this will mean foreign reserves will continue to grow , bolstering Botswana ' s external position .

Weak remittance flows from the Southern African Customs Union (SACU), low diamond prices and growing import demand will see Botswana's current account surplus narrow in the coming years. The biggest contribution to Botswana's current account is revenues from SACU, which we expect to fall on the back of poor growth in South Africa and a weak rand. Meanwhile, Botswana's total exports will increase only slightly between 2017 and 2019, as global diamond prices only recover slightly after a major fall in recent years. Imports will be boosted by stabilising inflation fuelling higher consumer spending as well as a high demand for capital goods imports to support ongoing infrastructure projects. This relative weakening will not be sufficient to wipe out Botswana's current account surplus, but will reduce it in the coming years from an expected 9.0% of GDP in 2016 to 6.6% in 2017 and 4.1% in 2018.

The major development projects will also ensure high ongoing foreign direct investment (FDI), which, in the absence of a current account shortfall, will help reserves to recover from their three year downward trend. Growing reserves will strengthen Botswana's external accounts during a more challenging external environment. Furthermore, it will allow the Bank of Botswana (BoB) to maintain its crawling currency peg.

Increasing Goods Trade Deficit To Drive C/A Surplus Narrowing
Botswana - Current Account Balance
e/f = BMI estimate/forecast. Source: BMI, BoB

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