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Botswana GDP forecast cut amid diamond slump

Cape Town – Botswana’s gross domestic product forecast has been trimmed by 2.3%, reflecting the recent slump in diamond prices together with reduced demand, according to Moody’s Investors Service.
    
Diamonds account for almost 40% of Botswana’s revenue, which makes up 85% of exports in dollar terms.

“The Botswana Ministry of Finance reduced its growth forecast for 2015 real GDP to 2.6% from the original 4.9%,” according to Moody’s.

Rather than the predicted fiscal surplus for 2015, the Botswana Ministry of Finance has projected a deficit of 1% of GDP.

In April 2015 Botswana's economy registered fourth-quarter growth to 3.3% quarter-on-quarter, from a revised 1.5%.

“We see risks for an even more pronounced deficit because of a prolonged downturn in world diamond demand specifically tied to China’s economic rebalancing and lower luxury spending,” said Moody’s senior vice-president Kristin Lindow.

Lower diamond revenues in 2015-16 will add to existing pressures on the government budget, according to Lindow.

“The budget deficit illustrates, once again, Botswana’s vulnerability to changing world diamond demand.”

While Botswana has a “sound balance sheet and macroeconomic management”, Lindow has identified the country’s heavy dependence on diamond revenue as a weakness.

“(Botswana’s) narrow economic base that is heavily dependent on diamonds for fiscal and foreign exchange revenues remains its key credit weakness,” Lindow said.

Moody’s expects diamond prices to remain low in the near future, adding that the economic growth outlook faces further downward risks.

De Beers slashes prices

On Monday Bloomberg reported that De Beers, the world’s biggest diamond producer, had lowered its prices by as much as 9% to boost sales.

According to Bloomberg sources, about $250m in precious stones would be put on sale.

In July De Beers cut its 2015 production goal to 29-31 million carats from an earlier target of 30-32 million carats.

Botswana move

In 2011 a decision was made to move the whole of the company's sales operation - 85 out of 300 London-based De Beers employees - to Gaborone in Botwana, according to a 2013 Reuters report.

The move will cost more than $120m, and follows years of negotiations between De Beers and Botswana.

The move secured a new 10-year contract for the sorting, valuing and sale of diamonds from the Botswana mines run by Debswana, a 50:50 joint venture between De Beers and the Botswana government - the longest sales contract agreed to date between the two sides.

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