Lockdown siphons Botswana’s foreign reserves

Global coronavirus (COVID-19) lockdowns and travel bans have crippled Botswana’s mining and tourism, the country’s primary foreign currency earners.

This has led to a trade deficit, the difference between the value of imported and exported goods, rose to P4.1 billion in May, further eating away at the country’s precarious foreign reserves.

Senior Bank of Botswana (BoB) executives recently raised the alarm on the country’s foreign reserve buffers, noting that since the lockdown, very little foreign currency inflows were being recorded besides the earnings from the Southern African Customs Union revenue pool.

Numbers released by Statistics Botswana this week painted a bleak picture, with imports of goods in May reaching P4.4 billion, compared to exports of P275 million. The resultant trade deficit of P4.2 billion is the largest since October 2013, according to available Statistics Botswana records.

The May position also represents a deterioration from April, when imports were pegged at P1.4 billion compared to exports of P146 million, which produced a deficit of P1.2 billion.

The data agency’s figures suggest that while exports were lower during April – the first month of the lockdown – the deficit was constrained by equally low imports. However, as the lockdown eased in May with business activity warming up, imports rose, while exports, which mainly comprise minerals, remained muted. The May statistics show that fuel was the biggest import item in May, being valued at P1 billion, a jump from being measured at P208 million in April.

Machinery and electrical equipment imports were pegged at P462 million in May compared to P192 million in April, while imports of metal and metal products rose to P146 million from P35 million.

Diamond imports rose from zero in April to P974 million in May, signifying the partial resumption of diamond trading activities. Each month, diamonds from De Beers’ global operations are brought to Botswana for aggregation and sale to local and international buyers.

While the goods were able to land in the country from De Beers mines in May, the buyers who purchase the majority of the stones were unable to travel due to bans, resulting in limited exports.

Other exports across the board for May were similarly muted although there were improvements in diamonds, machinery and electrical products as well as salt and soda ash.

Central bank officials recently said the widening trade deficits were untenable. The BoB is the custodian of the country’s foreign reserves and is required to keep a minimum import cover of six months.

The Bank’s head of research and financial stability, Tshokologo Kganetsano said the rapid depletion of the foreign reserves was underpinned by the lack of diversity in the country’s revenues sources, as well as the impact of the COVID-19 pandemic.

“We are receiving about P3.5 billion from the Southern African Customs Union every three months, but our monthly import bill is about P5.5 billion.

“There have been very little mineral and other exports in 2020 due to the pandemic and just from these numbers, it’s clear there is a very urgent need for diversified revenue sources.”