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Govt defends position on economic stimulus package

Staff Writer
The Assistant Minister of Finance and Development Planning, Keletso Rakhudu, says while the government has not drawn up a hefty stimulus package to prop the local economy against the recession, its range of initiatives and policy interventions have kept the country adequately afloat.

Speaking at the Annual General Meeting of Botswana Exporters and Manufacturers Association (BEMA) last week, Rakhudu said despite pressure from the private sector for a cure-all stimulus package, Botswana's economic composition was different from some Western countries' that have pumped in billions of dollars to rescue their economies.

"Unlike the developed countries, for us the big companies are not owned by the government," he said.

"We cannot do what the US did to their General Motors - they were putting money into their own entities. As Botswana, we have also done that over the years, but just because there was no recession, it was not seen as a stimulus package. For instance, the government continued pumping in money while others quit."

Rakhudu explained that instead of a financial stimulus package for the private sector, the government had decided to support its spending in the economy as a way of supporting the private sector in spite of the recession."We have realised that if we don't do anything to stimulate the economy, it may well fall flat on its face," he said. "Government has thus done something through innovative budgeting. Government has decided to run a deficit on the current budget and also run a deficit on the National Development Plan (NDP) 10.

The reason for this is that the economy is small and the private sector is highly dependent on government spending. If the government had cut spending, this would result in a lot of industries failing, and the second round effects would be that thousands of people would be roaming the streets, coupled with a rise in corruption and crime."

Botswana's budget deficit is currently 14 percent of GDP, above the fiscal standard of a maximum of 10 percent. The Ministry of Finance and Development Planning also forecasts a P32 billion deficit on NDP 10, which started in April this year.

Rakhudu said thus, the government had tackled the question of a financial stimulus through sustained government spending

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to the private sector instead of a once-off package. Responding to suggestions that the government could have tapped into foreign reserves to finance a stimulus package, the Assistant Minister said such recommendations were shortsighted."These foreign reserves do not solely belong to Government," he said. "They also belong to you as the private sector. When the reserves were at P70 billion, the government actually owned about P24 billion of that. With a P32 billion deficit on NDP 10 alone, what could we do about that because we also have to maintain a six-month minimum import cover? Other sources are domestic borrowing, but we have a cap on that."Rakhudu added that part of Government's alternative stimulus package is the on-going infrastructural development, without which the private sector's growth could be hamstrung. One such initiative the government has been fast-tracking is the international undersea telecommunication cable connection, which will bring broadband connectivity to Botswana.Other initiatives the government is pushing forward are the various Hubs designed to be engines of growth for the private sector. Rakhudu revealed that while none of the envisaged hubs was operational, all were negotiating various operating policies, including taxes, with relevant government departments.

The Innovation Hub, he said, has sealed a 15-percent tax agreement for all its private sector partners. This will be translated to the other hubs. "A bill about taxes for these hubs will be tabled in Parliament in November," said Rakhudu.

The global recession has compelled Botswana to dig into its foreign reserves, other coffers and international lenders to help plug the country's budgetary deficit. Analysts have criticised the government's decision to "spend its way" out of the recession, warning that the country could plunge into deep debt and mortgage the economy to international lenders.

However, there are encouraging signs that mining, the economy's mainstay, could be recovering, particularly in the diamond sector where local production is ramping up, driven by rising rough diamond prices on the world market.



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