Boston, MA -- (SBWIRE) -- 05/24/2013 -- A greater-than-expected deceleration in Botswana's economy in 2012 has prompted us to downgrade our real GDP growth forecasts for the country in 2013 and 2014. However, the outlook remains relatively positive, with robust expansion in mining-related investment and services helping to offset ongoing weakness in domestic demand and restrained government spending levels.

Despite the fact that fiscal revenues as a percentage of GDP are in long-term decline, we believe that restrained government spending should ensure that Botswana's fiscal trajectory remains a sustainable one over the medium term.

We expect inflation to chart a broadly downward path over the medium term, driven by a combination of subdued domestic demand pressures and restrained government spending. That said, we believe that transient factors and a weakening currency are likely to keep inflation above the Bank of Botswana's 3.0%-6.0% target range over the near term.

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The next few years will arguably be among the most challenging faced by the ruling Botswana Democratic Party (BDP) since it came to power in 1966. Despite signs that a shift in the country's political landscape may be under way, we maintain that a comfortable victory for the BDP in the 2014 election remains by far the most likely outcome.

Major Forecast Changes

Weaker-than-expected data published by Statistics Botswana, which also included some downward historical revisions, has led us to adjust downward our real GDP growth forecasts for the country in 2013 and 2014 to 4.8% and 5.2% (compared to 5.4% and 5.8% previously).

Substantial revisions to Botswana's balance of payments data (attributable to a number of statistical and methodological issues) have prompted us to significantly adjust down our forecasts for the current account balance. We are now forecasting a current account shortfall of 4.3% and 3.9% of GDP in 2013 and 2014 respectively (compared to surpluses of 1.4% and 2.3%).

Key Risks To Outlook

A greater than anticipated deterioration in the global economy would put further downward pressure on demand for diamond exports and thus pose significant risks to our growth forecasts.

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