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Govt seeks 'soft window' into World Bank to cover deficit

Staff Writer
Botswana will approach the World Bank and the African Development Bank (AFDB) for "soft loans" to cover part of this year's P13.4 billion budget deficit.

Addressing a press conference on Tuesday prior to leaving for Washington to attend scheduled World Bank/IMF meetings, the Minister of Finance and Development Planning, Baledzi Gaolathe, said he was scheduled to meet the multi-lateral banks' officials "to agree on modalities of accessing budget support".

"We will discuss with them (World Bank) ways of how they can assist us," Gaolathe said. "We are looking for a soft window because it is punitive as a middle-income country not to get any other assistance."

The Minister said options for Botswana were tapping from the Vulnerability Fund that the Bank proposed at the G20 meeting in London earlier this month.

Leaders of the world's largest economies reached an agreement to increase resources available to the IMF, which helps countries that get into difficulties, by US$750billion.

However, because the IMF traditionally covers balance of payment difficulties - which Botswana has not experienced yet - the only option is to look for a soft loan from the World Bank.

"We are going to show them how Botswana is badly affected by the global downturn," Gaolathe said.

The Minister will also hold talks with AFDB officials for a budget support loan. "As we speak, we are in discussions with them for (such) a loan," he said. 

In February, Gaolathe announced a P37.79 billion budget for 2009/10 that left a gaping P13.4 billion deficit in an economy known for perennial budget surpluses.

He told Parliament that

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the country would use borrowed funds and some of its huge foreign reserves now estimated at US$9.2 billion to offset the rare but huge budget deficit caused by falling diamond exports revenues.

"The deficit will be financed largely by drawing from our savings, and where favourable financing is available, by borrowing," he said. The policy has been to balance the budget over the medium term and accumulate surpluses during boom years for use as a credit balance in difficult times.

Gaolathe explained that under normal conditions, the current deficit would not be prudent, but the nation must recognise that in the extraordinary circumstances such as these, a fiscal stimulus to boost growth and employment in the economy was appropriate.

In an interview with Business Week recently, the Head of Research for Africa at the Standard Chartered Bank Group, Razia Khan, said Botswana should consider borrowing from the IMF or the World Bank to cover its budget deficit if the global downturn deepened.

"Botswana should not rule out borrowing from the fund because it's a good opportunity to fall back on when the situation becomes severe," Khan said.

Khan, who had marathon meetings with top government officials while in the country of her birth, also advised the government to develop a debt market as a matter of urgency so that it could tap from the excess liquidity in the local market and cover the deficit.



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