World Bank raises Botswana's GDP forecast

MBONGENI MGUNI
Staff Writer | Friday June 11, 2010 00:00

 

Rough diamond prices have returned to their pre-recession levels, having fallen by up to 60 percent during last year's recession. Robust prices have been recorded at sights held by the Diamond Trading Company and tenders held by other producers such as Gem Diamonds this year.

Prices have been strong across varying grades and colours of diamonds, reflecting the recovery of global consumer markets. The Global Economic Prospects Summer Update released on Wednesday revises the World Bank's projections for Botswana's economy this year but lowers the forecast for 2011 marginally to 5.5 from 5.6 percent.

'Diamond producing countries are likely to see a strong bounce back in activity in 2010 after poor performance in 2009 as demand for diamonds has recovered sharply,' says the Update. 'Botswana and Namibia are projected to grow 5.8 percent and 4.4 percent this year, while other mineral rich economies will also benefit from robust external demand, in particular from Asia.'

World Bank's researchers say sub-Saharan Africa has weathered the global crisis 'better than expected' and emerged from the recession ahead of more developed nations. This was partly due to the region's limited financial integration and the use of counter-cyclical fiscal policies as Botswana did last year in running a P13.48 billion deficit.

However, the Update warns that the growing crisis in the Eurozone is the biggest threat to Botswana and sub-Sahara's projected recovery. The World Bank researchers point out that many African countries have close trade ties with the economies at risk.

'The possibility of a major disruption emanating from concerns over sovereign debt sustainability in a number of European economies is real,' the Update warns. 'Overall, sub-Saharan exporters are the third most exposed in the developing world.'

The research shows that Francophone Africa, which is more financially linked to Europe, could be hardest hit from the Eurozone crisis. However, southern Africa will not escape unscathed as there are risks of second round effects through trade flows and heightened risk aversion among investors.In addition, the pressures of last year's expansionary fiscal policy and running deficits have left Botswana severely exposed to any blowback from the growing Eurozone crisis.

The World Bank warns that countries such as Botswana have 'limited fiscal space' to cope with external shocks such as may arise from the Eurozone.

'Outside of an aggravation of the crisis in Europe, the risks for the region are largely balanced with the most important downside risk relating to the strength and sustainability of the global recovery and in particular, that of high-income countries,' the Update continues.

'The untimely withdrawal of fiscal and monetary stimuli could weaken the recovery in the short-term, although a slow withdrawal in high income countries would lead to macro-economic imbalances if delayed too much.'

Opportunities for Botswana and other sub-Saharan countries exist in the possibility of stronger-than-expected global cyclical bounce back, which could translate into larger trade gains and stronger external demand.

Countries with expectations of higher growth than Botswana this year include the Republic of Congo, Angola, Mozambique and Nigeria. Interestingly, the World Bank does not expect benefits from the World Cup to significantly outweigh South Africa's other economic challenges this year. The GEP Update projects a 3.1 percent economic growth for the regional powerhouse this year, followed by 3.4 percent for 2010.

While the World Cup will result in increased tourism and other economic revenues, South Africa's growth will be subdued by 'persistently high unemployment, high level of indebtedness, and strict credit rules applied by banks'.