The domestic economy is likely to bounce back with double-digit growth next year, but remains at risk from an over-dependence on government spending, Keith Jefferis, a former deputy governor of the Bank of Botswana, told Dow Jones Newswires in a recent interview.
Taxi drivers waited for customers in the diamond mining town of Letlhakane, Botswana on Sept. 8, 2009.
Gross domestic product is likely to have shrunk about 6% this year after Debswana Diamond Co. -- the world's largest producer of diamonds by value -- suspended its work at its mines for almost three months, he said. But with a full year of diamond output next year, and coming off a low base, the economy is likely to grow 10% to 11% next year, he said.
Mr. Jefferis, now managing director of Gaborone-based consultancy Econsult Botswana, said years of benefiting from diamond revenue as equal owner of Debswana with Anglo American PLC-controlled De Beers SA has left the government unable to prioritize spending.
Citing government spending on populist projects such as schools and paved roads in remote, low-populated areas of the country, he said: "We've lost the art of saying no. The economy needs to become less dependent on government."
Mr. Jefferis estimated the government employs about 40% of the formally employed labor force in Botswana.
"There is a period of risk. The danger is that you don't take those hard decisions and you run down your savings and you incur debt--in five years' time you become a basket case," he said.
Debswana's stones contribute about 33% of Botswana's GDP and more than 80% of foreign earnings. The government has depended on diamond revenues to bolster its coffers and drive the economy since the development of the mining industry following the country's independence in 1966.
But earlier this year, the African Development Bank approved a $1.5 billion loan to help Botswana deal with the fallout of the global financial crisis. It was the first such borrowing by Botswana from the bank in 17 years.
While the mining segment of the economy contracted sharply this year, as demand for diamonds slumped amid the global economic crisis, the nonmining economy has continued to grow at between 8% and 9%, Mr. Jefferis said. Government spending accounts for a large portion of that growth, he added.
The government's National Development Plan aims to reduce public spending as a proportion of GDP to 30% from 40%, while at the same time encouraging diversification of the mining industry to develop production of copper, uranium, coal and other minerals, he said.
President Ian Khama, who secured a new five-year term in elections in October after succeeding Festus Mogae in April 2008, in his state of the nation address in mid-November said the country slipped into recession in the first quarter of 2009 when gross domestic product contracted 22% after shrinking by a little over 6% in the fourth quarter of the previous year.
Mr. Khama projected a budget deficit of 13.4 billion pula ($1.97 billion) in the year through March, up from 3.6 billion pula a year earlier. Mineral revenue would drop to about 6.8 billion pula in the current financial year from 10.8 billion pula the year before, he said.
Source:/online.wsj.com/
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