Botswana will use some of its P88 billion in foreign exchange reserves to stimulate the economy after a drop in diamond prices hit growth of the domestic economy, President Ian Khama said on Saturday.
The announcement comes after government slashed its 2015 growth forecast from 4.9 percent to 2.6 percent in September, saying the country will post a budget deficit this year. Diamonds account for around 75 percent of Botswana’s foreign exchange earnings and 30 percent of GDP, but gem demand has slowed since late 2014 as middlemen who buy rough stones struggle with a stronger dollar and liquidity problems. The value of rough diamond exports from Botswana’s mines fell 15 percent in the first six months of the year.
“We have realised our economy is going to stagnate,” Khama said in a speech televised late Sunday.
“The time has come for us to make bold decisions and implement these new projects that will boost our economy. But that doesn’t mean we are going to be reckless,” Khama added, without giving details on the size of the extra spending.
The economic stimulus, which Khama said would be ready in “a few weeks”, will target tourism development, agricultural production, construction and manufacturing. Botswana currently has P88 billion in foreign currency reserves, with around half held in a sovereign wealth fund. Meanwhile Khama also told BDP members that Cabinet has started working on an economic programme which will concentrate on stimulating and diversifying the economy as well as accelerated employment creation.
“We will use our money to buy from Batswana.” He said the country spends about P800 million to procure locally available goods for government institutions including Botswana Defence Force, Botswana Police Service, government hospitals and schools. He says government will not start buying directly from local producers whether they are commercial or not before they can start looking outside the country.
This is part of the planned Economic Diversification Drive (EDD) which will be implemented under the watch of a special unit to be made up of 36 people.
He explained that the country was projecting another budget deficit next year due to the global decline in commodity prices. The situation is not helped by the fact that the country is currently grappling with drought, economic recession, water and electricity shortage.
Despited the projected budget deficit, government is planning an expansionary budget in a bid to stimulate the economy. He explained that if they were to continue cutting back on project expenditure the economy would stagnate. Instead government will now go on a massive construction spending spree.
Khama said the economic stimulus budget would be spread in all areas; building construction, road construction, tourism development, increased agricultural production and manufacturing.
So far the Ministry of local government is looking at building 1280 ablution blocks, a number of Kgotla offices, internal road construction and maintenance projects. The programme is billed to start this year. Millions of pula has been set aside to service 3160 plots. &11 houses will be built under the programme while 4480 houses will be built under the Botswana Housing Corporation.