Diamonds “’ the key
to economic recovery
in Botswana
 
Johannesburg, South Africa — MININGREVIEW.COM — 18 February 2010 – Botswana’s diamond-based economy should return to growth this year, but the recovery from a sharp slump is likely to be slow as international demand for the precious stones gradually improves.

A Reuters poll of nine economists here predicted growth in the world’s biggest diamond producer to rebound to 4.9% in calendar 2010, and to maintain that growth next year. Forecasts ranged from 3.5 to 7.5% for 2010, and between 3.2 and 9.6% for 2011.
 
Botswana’s economy was battered by a collapse in world demand for diamonds “’ its main product “’ that has knocked economic activity and slashed government revenue.

Finance minister Kenneth Matambo is on record as saying that the budget deficit was forecast to have swelled to 12.2% of GDP in 2010/11 due to lower diamond sales, and that the economy may record zero growth in the financial year to June. It was seen expanding 5% in 2010/11.

Matambo said in his budget speech that mining output was likely to take up to two years to recover, holding back growth, although loose fiscal policy should support the economy until the full recovery in diamond demand.

Analysts warned that the government’s large budget shortfall “’ diamonds account for 40% of state revenue “’ put the economy at risk should the global recovery falter. They said the economy remained susceptible to a renewed slowdown in the global economy, the ramifications of which would be severe for Botswana given its bloated fiscal deficit."

The Reuters poll showed inflation stabilising just outside the central bank’s 3 to 6% target range for the next two years “’ averaging 6.5% this year and 6.3% in 2011.

Inflation has been on a downward trend since peaking at 15.1% in August 2008, and the Bank of Botswana expects it to settle inside its 3 to 6% target range in the medium term.