Global Financial Crisis To Hit Botswana Economy

Mineral exports, in particular diamond sales, had started to fall significantly in November.

The global economic crisis has started to impact Botswana's output, and will hit the mineral sector hardest which accounts for the bulk of export earnings, Finance Minister Baledzi Gaolathe said on Friday.

Gaolathe told parliament that the world credit crunch had forced the curtailment and postponement of Botswana's capital expenditure programmes, worsening the decline in demand and hitting employment.

"The lack of available credit and long-term investment funds has slowed down growth in consumer spending, reduced employment and incomes, as well as causing capital losses on personal savings and other assets," he said.

Mineral exports, in particular diamond sales, had started to fall significantly in November and there had been a been a sharp decline in commodity prices for other minerals like copper, nickel and gold in the past three months.

"As a result of these developments, there will be a slowdown in economic growth and decline in government revenues, in particular mineral revenue which forms the bulk of government's total revenues, from the end of 2008/09 until 2010/11," Gaolathe said.

"The expected substantial reduction in mineral revenue due to the global financial crisis is a cause for serious concern, given that such revenues have accounted for about 35-50 percent of the total government revenues over the past 5 years."

However, Botswana's foreign exchange reserves had increased, with the value of the Bank of Botswana's investment portfolios rising due to the relatively good performance of the global bond markets and relative strength of the currencies in which the portfolios were invested.

"(But) in the face of uncertainty as to the duration of the global economic slowdown, the cushion provided by the foreign exchange reserves may not be sufficient to ensure long term budget sustainability," Gaolathe said.

"The budget implications of the crisis are very serious and call for belt-tightening by all stakeholders, including workers, to ensure budget sustainability and minimize job losses."