Turn financial crisis into opportunity,says economist

Brian Benza
Staff Writer | Friday May 8, 2009 00:00

The former Bank of Botswana deputy governor said the country needs to go through the reforms if it is to achieve sustainable long-term growth. He said the impact of the global crisis illustrates the need to boost economic growth through regulatory and other reforms, and should certainly not be used as a reason to delay reforms.

In his economic quarterly review, the Bifm Investment Committee chairman said that public spending will not be a big driver of growth in the coming years as it has been in the past, reinforcing the need to address other constraints. 'Many of these have long been identified, and include factors such as an overly-dominant public sector, unduly restrictive business licensing and immigration regulations, and limited availability of land.

Unfortunately, commitment to the reform agenda sometimes seems patchy, and some recent developments have been backward steps. In recent months, for instance, business  licensing regulations have become even more restrictive, by extending the range of businesses that need a licence to operate, whereas government has earlier made commitments to relax the licensing regulations,' he said.

Jefferis pointed out that bureaucratic systems such as getting work permits approved for skilled foreigners has become more difficult, after a period when restrictions were relaxed, illustrating another policy inconsistency.  He emphasised additional restrictions that have been announced on the transfer of land ownership and change of use. 'This is also counter-productive. Botswana already has artificially- created land shortages caused by outdated laws, regulations and custom. However, efficient use of land requires its transfer from low productivity uses such as traditional agriculture to high productivity uses such as commercial, industrial and residential uses, preferably in a speedy and flexible manner.

By preventing or further restricting such changes, another barrier is placed in the way of private sector-led growth and employment creation,' he said. The renowned economist added that the current global economic crisis provides an opportunity to improve the efficiency of public spending and speed up regulatory reform.

'Indeed, the crisis may make help to bring about decisions and introduce changes that in more buoyant times could be postponed; as India's former Prime Minister, P.V. Narasimha Rao once said, 'decisions are easy when there are no options left'. But as with Rao's abolition of India's 'licence raj', such changes are necessary to improve Botswana's long-term economic growth prospects'', Jefferis said.

Growth prospects for Botswana will be slightly low in the coming years due to the heavy toll the economic crisis has had on the country's main exports, diamonds. Diamond revenue is expected to reduce by half this year putting pressure on government coffers.

After having underestimated the extent of the impact of the crisis on the country's economy, government has now resorted to seeking budget support from the Bretton Woods institutions as well as the African Development Bank (AfDB).

Announcing the 2009 national budget, Finance Minister Baledzi Gaolathe indicated that the P13 billion budget deficit would mainly be financed from domestic borrowings as well as drawing down on foreign exchange reserves. However, this week, the minister announced that government will now borrow about P13 billion from AfDB and the World Bank to finance the budget deficit.

AfDB, whose mission was in Botswana recently, has already drafted a Country Strategy Paper (CSP), which has details on interventions of how it will assist. The bank will give Botswana $1.5 billion budget support, project-focused loans and investments.