IMF trims Botswana deficit forecast

MBONGENI MGUNI
Staff Writer | Thursday September 2, 2010 00:00

 

Government anticipates a P12.1 billion deficit, equivalent to 12.2 percent of the forecast 2010/11 Gross Domestic Product (GDP) of P99.70 billion. The IMF's prediction for the deficit - based on the government's GDP projections - is thus approximately P6.4 billion.

The Fund said while Botswana's plans to balance the budget by 2012/13 were 'ambitious', they were also warranted, given the numerous fiscal threats, including double-dip recession in advanced economies and lower mineral revenues in the medium-term.

The IMF also revised upwards to 8.4 percent its projections for Botswana's GDP from the 6.3 percent it forecast in the World Economic Outlook April report.

In a report released last week based on the IMF Executive Board's consultative mission to Botswana in June, the Fund forecast higher than targeted diamond production for Botswana this year at 23.2 million carats. The higher forecasts include Firestone Diamonds' BK 11 mine near Orapa, which began production in July.

In compiling its report, the IMF Executive Board met with finance minister Kenneth Matambo, Bank of Botswana governor Linah Mohohlo, senior government officials, development partners, the private sector, trade unions and the civil society.

'The economy is likely to see some re-balancing this year and next year as mining continues its gradual recovery while the non-mining sector decelerates as fiscal stimulus is withdrawn,' the Fund said. 'Overall GDP growth is projected to reach 8.4 percent in 2010, led by a rebound in diamond production.'

By June 30 this year, Debswana's mines had produced 10.267 million carats or 67 percent of De Beers' first half production, well on track to reach its target of 20 million carats by year-end.

Using De Beers' first half statistics, Debswana's production was valued at approximately US$1.7 billion (P11.6 billion), raking in billions for the government in royalties, dividends, taxes and 80/20 profit split that favours Botswana.

The IMF anticipates that the mining sector will grow by 16.8 percent this year, following its collapse last year on the back of lower prices for gemstones, base metals and other metals.

The IMF Executive Board, however, predicts that the non-mining sector will decelerate and record 4.8 percent growth from last year's 6.2 percent.

'The economy is likely to see some rebalancing this year as lower government spending dampens growth in the non-mining sector while recovery of the diamond sector accelerates,' reads the Executive Board's report.

'Substantial fiscal consolidation will be needed as recovery proceeds to put the public finances back on a sustainable footing and to safeguard external stability.'

The IMF says much of the consolidation will need to come from cutbacks in public spending, increasing value for money in public spending programmes and a transition to programme-based budgeting.

The Fund also recommends greater private sector-led growth through reforms to encourage entrepreneurship and investment, as well as privatisation, public-private partnerships and rationalisation of commercial services.

The Executive Board visited Botswana between June 1 and 14, 2010.