Wednesday, May 25, 2022

Botswana braces for looming economic crisis

The global economic news is grim. From the recent job reports in the US to Tokyo’s plummeting markets and Europe’s struggling economy, the future is looking bleak ÔÇô but just how prepared is the Botswana economy likely to emerge from the looming crisis unscathed?

As the global economy threatens to slide towards the brink of faltering, at least into another recession akin to that of 2008, there are strong fears that Botswana could be heading for another disaster to be characterized by years of debilitating budget deficits.

And indications are that the road back to economic recovery will undoubtedly not be an easy one. The problem is compounded by the fact that the country is currently not in a strong a financial position as it was in 2008.

Independent economist and Econsult Managing director, Dr Keith Jefferis, notes that if the world economy implodes, “nobody will get out unscathed. Everybody will be exposed,” he emphasized.

The renowned economist believes that the country is prepared for any eventuality as the situation dictates adding that Botswana has done well since the last recession.

He admits that the global economic outlook is grim and that the outcome of the range will be wide.

“If the world goes into another recession as it did in 2008 then we will obviously be vulnerable to a down turn in the diamond market. We are probably not in such a strong position economically as we were in 2008 because the current level of our foreign exchange reserves is lower and government has taken a lot of debt,” said Dr Jefferis.

He observed that government has since taken appropriate measures to stabilize the situation especially the budget which is “quite successful”. A budget surplus of P1.15 billion is projected for the 2012/13 financial year.

“What is still outstanding is structured reforms and improvement to the business climate. Those are long term issues not related to short term problems in the world economy,” said the economist.

On the measures that the country ought to take to mitigate against any possible economic implosion, Dr Jefferis said the measures would be similar to the ones that government took in the aftermath of the 2008 economic recession especially the running of deficits to finance mega projects and stabilize the economy.

He is, however, worried that the country’s ability to absorb the shock is less favorable compared to 2008 when high foreign reserves and low debt levels were used to cushion the effects of the recession that other measures that could be instituted are long term, especially economic diversification which is a process that cannot be achieved overnight.

Dr Jefferis said the world has not yet entered into an economic recession but it has rather entered a period of economic uncertainty which could be avoided from turning into a fully blown crisis.

However, the Minister of Finance and Development Planning Kenneth Matambo, is not as apprehensive as Dr Jefferis explaining that since his February budget, nothing much has changed adding that the budget enumerated the potential risks.

Matambo said if the world economy imploded, government will have to adopted austerity measures to mitigate against the effects. “We know what is happening in the Euro zone. It has not yet affected us directly except for the beef industry. That market will however soon open for us once we have satisfied the requirements. All the risks you are alluding to have been addressed in the budget. Even the International Monetary Fund that recently assessed our economic situation has not implored us to change our planning”, said the finance minister adding “your fears are as good as mine”.

In the 2012 February budget, Matambo said the economic situation in which Botswana found itself dictated that the country must operate within a severely constrained budget to satisfy the diverse needs of its society.

He said in the budget that every part of government must ensure that available resources are allocated and used efficiently and effectively.

“Government’s priorities for the 2012/13 budget continue to focus on service delivery and maintenance of existing infrastructure, while completing on-going projects such as energy generation, dams, roads and self-liquidating projects with high rates of return. These priority areas are expected to improve efficiency, create employment opportunities and foster private sector growth”, said the finance minister.

He pointed out that all those had to be achieved against the backdrop of a constrained external trade and global competitiveness accompanied with prospects of declining revenues from current sources and the need to contain debt within sustainable levels and the overall objective of balancing the budget for the 2012/13 financial year.

Like Dr Jefferis, in the 2012 budget Matambo said depletion of savings would leave the country vulnerable to future economic shocks without the ability to cushion the impact as was possible in the pasty recession adding the “need to live within our available means, undertaking only those additional development initiatives which enhance economic growth”.

In its economic bulletin for the first quarter of 2012, the Ministry of Finance notes that the latest update on World Economic Outlook report produced by the International Monetary Fund in April 2012 indicates uncertain global economic prospects with indications that the world real GDP projections will remain almost unchanged, with forecast growth of 4.5 percent for 2012.

The report further points to the fact that although conditions in the financial sector were improving across the world, tension still remains in the advanced economies whose growth is expected to improve slightly to 2.6 percent in 2012 compared to 2.4 percent in 2011.

Overall growth in the global economy is reportedly moving at two levels, with the advanced economies trailing at slower rates while the emerging and developing economies are showing faster growth rates.

“The above global economic highlights pose a challenge for Botswana as long as the mining sector remains the main driver of the economy, particularly from diamonds sales. If the global economy remains fragile, the demand for our diamonds will fall, leading to low exports and lower growth of GDP. Such economic performance have potential to affect employment levels if it were to continue for a longer period through shutting down of mines, laying off some workers and suspending mining contracts and related activities,” states the quarterly bulletin.

RELATED STORIES

Read this week's paper