Economic performance will be improved in 2010 with Gross Domestic Project (GDP) showing positive growth of approximately 10 percent, analysts reckon.
Renowned economist and E-consult managing director Keith Jefferis says that as the economic climate warms up, this year will see a marked change from 2009, although fiscal sustainability and keeping spending under control will again be one of the major challenges facing the country.
Jefferis believes that the 10 percent or more growth in GDP will be mainly driven by the recovery of the mining sector, bearing in mind that diamond production was cut sharply in 2009 causing negative growth last year.
"The fact that the diamond mines should operate at 80 percent capacity or more through 2010 will lead to higher output and hence growth.
"The non-mining sector has continued to grow steadily during 2009, although it may grow at a slower rate in 2010 as the growth of both government and consumer spending slows down," says Jefferis who is also a former central bank Deputy Governor.
On the performance of the mainstay of the economy, mining, Jefferis says that although the diamond market has shown some recovery towards the end of 2009, with higher prices and improved volumes compared to earlier in the year, sales remain below the high levels seen in 2007 and early 2008, and this situation is likely to continue.
"The USA remains the largest market for diamonds and consumer spending on luxury goods such as diamonds is still weak, albeit improving. So although Botswana's diamond exports have picked up, they remain well below earlier peaks," he says.
Copper and nickel have done better than diamonds in the second half of 2009, with strong demand from China and other emerging markets pushing prices up.
The recovery in global growth has helped industrial minerals such as copper and nickel, in contrast to luxury commodities such as diamonds. On the manufacturing sector, the economist says that global manufacturing activity is also picking up, but there is still substantial excess capacity in many industries which makes market conditions very competitive and hence difficult for producers such as Botswana.
On the other hand, Jefferis says that the tourism industry should improve in the year and Botswana should benefit from football extravaganza that comes to South Africa in June.
"Tourism activity should improve in 2010, but as much of Botswana's traditional tourism market comes from high-income developed country consumers, it will suffer to some from weak demand for luxury commodities. "There should however be a positive impact from the FIFA World Cup in South Africa with a big influx of tourists into the region," he added.
Although the year 2010 is expected to be a year of recovery, Jefferis believes that the recovery will only be sustained if government manages to keep its budgetary management on a leash.
The budget position is one of the country's biggest problems, however,
"This will be compounded by expected lower SACU revenues. It is therefore likely that there will be another budget deficit in 2010/2011.
"This needs to be smaller than the 2009/10 deficit if the overall fiscal position is to be kept sustainable."This means that government will need to keep a tight rein on spending and avoid supplementary budget allocations in order so that the deficit remains manageable", he said.
In the medium term, the economist reckons fiscal sustainability and keeping spending under control is one of the major challenges facing the country.
On the monetary policy, Jefferis says that he believes inflation should stay relatively low during 2010, remaining in a range of five percent to seven percent.
"There is unlikely to be any need to tighten monetary policy to deal with inflation, hence interest rates should stay around current levels which are low by the standards of the past two decades, and are supportive of economic activity in the current difficult environment," he said.
Motswedi securities analyst Gary Juma echoed Jefferis' sentiment and said he expects the continued recovery in the mining sector to support this recovery. Other sectors such as the finance and business services, construction and Agriculture will also contribute to GDP growth.
" However, rising energy costs can prove to be another drag on growth," he said.On the performance of the mining sector Juma says that commodity prices will be increasingly dependent on economic conditions in developing countries.
"With a buoyant recovery already underway in Asia, we expect commodity demand to strengthen ahead of the recovery in the industrialised world.
"A second factor is China's ambition to extend its influence over commodity markets throughout the world.Thus, in the medium term, commodity prices in real terms are likely to remain above historical trends further supporting the local mining sector.
" Metal prices, for example, rose by nearly 60 percent in the second half of 2009, led by copper, gold, lead and nickel," he added.
Commenting on the monetary policy stance the central bank is likely to take, Juma also said that Inflation is now within the BoB objective range and it is expected the Central Bank will now pause on its cutting cycle, waiting until the direction of inflation and the local economic recovery becomes clearer.
On the fiscal policy, Juma said he did not anticipate a bigger budget deficit this year as the government will most likely scale back on most of the stimulus packages and measures that it had put in place to mitigate the negative effects of the recession on the local economy.