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IMF predicts rosy outlook for Botswana

Staff Writer
Botswana is among select Sub-Saharan economies expected to expand by more than five percent this year and beyond on the back of rapidly normalising commodity prices and global trade.

The April report of the International Monetary Fund's World Economic Outlook released last week predicts that Botswana's economy will expand by 6.3 percent this year and by 5.1 percent in 2011/12. This is compared to the government's expectations of a five percent economic growth in 2010/11.

Part of this strong recovery, the IMF says, is due to Botswana's policy decision to spend its way through last year's recession, also known as countercyclical fiscal policy.Instead of providing stimulus packages to affected sectors, Botswana opted to maintain, and in some cases ramp up, spending throughout the recession as a way of supporting the economy. As a result, the country ran a deficit of P13.5 billion for 2009/10, partly financed by a P6.6 billion African Development Bank loan and a domestic bond programme.

Government plans to run a P12 billion deficit in the current financial year, funded through drawing down on public cash balances and another domestic bond programme. The IMF says sub-Saharan African economies such as Botswana, which implemented countercyclical fiscal policies, insulated themselves against the worst of the recession."The use of countercyclical fiscal policy during the global downturn, in contrast to previous downturns, was a welcome development in the region," the report states. "In most cases, the sustainability of public debt trajectories has not been adversely affected, a testament to improved fiscal positions in a number of sub-Saharan economies in the run-up to the downturn."

 The IMF is, however, quick to warn that as domestic and external demand rises, countries such as Botswana will have to turn from supporting economic output to increasing spending on growth-enhancing priorities such as infrastructure, health and education.

Government has been eager to demonstrate its caution towards growing public debt. The finance ministry is finalising a medium-term debt management strategy which will ensure "that the financing needs of the government are met at the lowest possible cost consistent with a prudent degree of risk, as well as taking account of the overall macroeconomic framework and market constraints."
Finance Minister, Kenneth Matambo, has also said the government is using

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the utmost care in its public borrowings in order to avoid overburdening the fiscus and mortgaging away future revenues.

The IMF report says the higher economic growth predictions for Botswana are also attributable to rising commodity prices and the country's openness to global trade. As a result, the rapid normalisation of global trade and higher commodity prices is expected to propel Botswana towards sound economic growth this year and beyond.  The country's integration in global trade, however, proved to be its Achilles' heel during the recession as its mineral export dependency was exposed to the slump in commodity prices and the collapse of traditional markets. "Shocks from the global crisis hit sub-Saharan Africa mainly through the trade channel," says the IMF report. "Reflecting their greater openness to trade, the region's middle-income countries were among the hardest-hit. However, banking sectors have so far proved generally resilient and private capital inflows have resumed into the region's more integrated economies."

Despite the favourable outlook, the IMF says threats exist to Botswana and other economies' recovery this year and beyond. These include a more hesitant recovery in developed economies, which represent the market for Botswana's prime exports of diamonds, beef and textiles. The IMF says a recovery pattern in these developed countries that gives rise to large swings in commodity prices will have varied effects on the sub-Saharan region.

For instance, such a recovery could raise demand for diamonds but also hike energy prices, thus dampening growth and raising inflation.

In addition, the IMF warns that attracting private capital will continue to be a major policy challenge for the sub-Saharan region."More than a third of economies in sub-Saharan Africa remain on the margins of international capital markets and (are) dependent on official forms of external financing," the report says.  For these economies, the same reforms that are needed to raise productive potential - including promoting trade and financial sector development, encouraging domestic saving and investment, raising standards of governance and strengthening institutions - are also likely to help attract private inflows on a sustained basis."



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