Gaborone: Botswana, the world's biggest diamond producer, returned to its habit of running budget surpluses on Wednesday, turning the corner on three years of deficits sparked by the 2008 global financial crisis. In his budget speech to parliament, Finance Minister Kenneth Matambo forecast a small surplus of 0.9 percent of GDP, but slashed his overall economic growth forecast to 4.4 percent for 2012, compared with a previous projection of 7.1 percent.
The International Monetary Fund is projecting 5.3 percent.
The dampened growth outlook was due in part to continued uncertainty in diamond sales, which fell 70 percent from June to December, Matambo said. Diamonds and other mining accounts for 40 percent of the landlocked southern African nation's output.
However, the government, which enjoys the best credit rating in Africa, would balance its books by cutting spending to 33 percent of GDP in the upcoming fiscal year, from 36 percent last year, Matambo said.
"There is no guarantee that the diamond sales situation will improve and hence the need to re-prioritise projects and all expenditure both at national and household level," he said.
All government ministries would be subject to a 5 percent cut in their wage bill for the next three years and new hires had been frozen, he added, setting President Ian Khama's government on a potential collision course with public sector unions.
Last year, up to 90,000 state workers staged an unprecedented two-month strike demanding steep pay rises.
Khama, a UK-trained military officer, refused to back down and eventually won through by arguing that the country could not afford the increases. However, the episode shook the ruling party's 45-year grip on power.
The 2008/09 slump in global gem prices forced some of Botswana's diamond mines to close for the first time, and gave a glimpse of difficulties that await when the mines run dry.
The budget deficit ballooned to a whopping 15 percent of GDP - the former British colony's first spending shortfall - and forced the government to seek an emergency $1.5 billion loan from the African Development Bank to keep its operations afloat.
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- Extracts from the budget speech
Regional Economic Review
14. Madam Speaker, regional integration, market liberalisation and overall economic growth, particularly within the Southern African Development Community (SADC) are critical for enhancing Botswana's effort towards moving from "factor driven" growth, based on mineral exports, towards a more diversified and "efficiency driven" growth. It is, therefore, encouraging to note that generally SADC Member States experienced satisfactory economic performance in 2010 and 2011. Further, the medium term prospects indicate that the region is expected to register economic growth of 5.6 percent in 2012. Such positive growth increases prospects for regional trade and opens up a widow of opportunity for Batswana to invest more in export-oriented goods and services.
15. Meanwhile, efforts are continuing to consolidate the SADC Free Trade Area in order to move towards a Customs Union. The immediate focus of SADC is a review of the rules of origin; completion of tariff reductions for selected products; removal of Non-Tariff Barriers; and developing a mechanism to assist Member States that are not yet in the Free Trade Area to participate therein. Other areas to be addressed include the issue of overlapping memberships where some countries are members of more than one regional organisation. Progress achieved in these areas would determine when negotiations towards the establishment of a SADC Customs Union would commence.
Trade and Investment Climate
26. Madam Speaker, the World Bank "Doing Business Report" investigates the practices that enhance business activity and those that constrain it. The latest report of 2011, rated Botswana third in Africa and 52nd out of 183 countries surveyed. It reports challenges in the categories of: starting a business which still takes 10 procedures and 61 days; dealing with construction permits, with numerous procedures and taking 167 days to complete; and trading across borders, which is associated with high import and export costs. While Botswana is still rated the least corrupt country in Africa, these results pose a substantial challenge for all of us to devise strategies to improve the environment necessary for enhancing investment, competitiveness and economic diversification.
27. Further, trade and investment are very much a function of the prevailing domestic business environment. For 2011, Standard & Poor's and Moody's Investors Service have maintained the country's investment grade credit ratings, and in November 2011 Moody's changed the outlook on Botswana's sovereign ratings from negative to stable. The ratings reflect the continued confidence in the capacity and resolve of the Botswana authorities to maintain the good track record of efficient and prudent macroeconomic management and this should be sustained. Nevertheless, the agencies continue to stress the importance of fiscal consolidation and implementation of economic diversification strategies within the shortest possible time and we need to take note of these observations as we make plans for our development initiatives.
- The speech, and supporting documentation, can be accessed here.
