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Friday, Moody's Investors Service changed the outlook on Botswana's A2 government bond ratings to negative from stable, reflecting the continued strain on the country's finances due to global economic crisis.
Moody's noted that Botswana's economy was hit especially hard at the beginning of the crisis, when worldwide demand for luxury goods such as diamonds literally collapsed and local diamond producer Debswana closed its mines for several months.
"The slump in diamond sales is likely to be prolonged, so the government's budget is likely to remain in deficit for at least a few years," said Kristin Lindow, Moody's Senior Vice President and Regional Credit Officer for Africa. "The government's strong net financial position would be jeopardized by an extended downturn in diamond output and/or the persistence of large ongoing budget deficits." Lindow noted that the rating outlook would likely be moved back to stable when the government succeeds to compress its spending to a level more consistent with its ongoing revenue stream.
On the other hand, Moody's warned that the government's ratings would likely be downgraded to A3 upon the failure to stem the deterioration in its net asset position over the medium term. The agency said that fiscal consolidation and economic diversification will be ever more vital to preserve the country's economic strength as the depletion of diamond resources approaches over the coming decades.
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