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Global economic hardship slows Botswana's growth and government revenue
Botswana's economic growth is highly dependent on developments in the diamond market which in turn is vulnerable to global economic conditions. The subdued global economic performance in recent years together with increased volatility and uncertainty has resulted in a slowdown in Botswana's economic growth performance. The fact that diamond output has reached a plateau after the completion of the Orapa project has also impacted on growth.
The less favourable conditions experienced in Botswana's diamond industry had negative consequences for government finances. Rising expenditure pressures, while revenues remained flat, resulted in a budget deficit for the first time in 1998/99 after 16 years of surpluses.
Adding to the diamond industry's woes are various negative shocks or events that have compounded the impact of the slowdown in diamond mining activity on the economy as a whole. Of note is the recurrence of foot and mouth disease in some parts of the country which negatively impacted on the beef industry. Also, the regional food crisis has contributed to higher interest rates to control inflation. Overriding all these is the fight against HIV/Aids which is threatening economic and socio-economic stability.
It is against this background that the Minister of Finance Baledzi Gaolathe delivered his budget speech yesterday. The budget can be seen as a combination of significant belt tightening and holding thumbs that the estimated revenue will materialize.
This scenario will also present itself in successive budgets as the economy is expected to perform below historical levels in the medium-term. The economy grew by a mere 2.3% (above initial estimates) in 2001/02 compared to the revised 8.4% recorded in 2000/01. Growth in 2003/04 and 2004/05 is expected to be in the region of 5%, which compared to historical growth rates, is below average.
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