Botswana can survive the impact of the looming euro zone crisis that threatens to derail economic growth, if government maintains its prudent management of fiscal spending growth as a buffer against future external shocks, Economists have advised.
The World Bank fears Europe‘s crisis could set off deeper global slump than Lehman collapse. The bank cut its global forecast from 3.4pc to 2.5pc for 2012, warning that the euro zone has already fallen into recession and is likely to contract by 0.3pc this year. “The possibility of much worse outcomes is real,” it said. If Europe’s financial system seizes up, this could lop a further 4pc off global GDP.
“Botswana’s economic fortunes are inextricably linked to the condition of the global economy, with particular exposure to demand for diamonds in these markets. So a greater than anticipated slowdown in economic activity, would naturally depress domestic economic growth rates,” said Alphonse Ndzinge, Investment manager, Investec.
The report stated that the worldwide slowdown would affect export driven economies like Botswana. “Exports should continue to boost the local economy but a slower pace; there are obvious downside risks for consumer demand for luxury diamond goods to soften if global growth continues to slow,” he said.
However, Ndzinge said the current dynamics for the diamond market are still relatively encouraging. Despite the current global economic headwinds, prices for high quality diamonds have remained relatively robust, although still not close to highs reached in 2008.
“The long-term growth prospects will continue to hinge on the success of the country’s economic diversification efforts and the events of 2008 and 2009 emphasised the pressing need for this,” he said.
“We don’t know what is going to happen but one thing for sure is that, this will make it difficult for our exports like diamond and copper,” said economists Keith Jefferies.
Jefferies forecasts the country’s economic growth between six and 6.5 percent in 2012/13.
African countries did well during the last financial crisis because policy-makers maintained macro-economic reforms, but they need to be even more vigilant now. Inflation is in double digits in key economies such as Nigeria and Kenya.
Commodity prices could fall as much as 24 percent, hurting government revenue in export-dependent nations like our country. Ndzinge said, the squeeze on Government finances will have a negative bearing on the country’s fiscal position and further delay a return to budget balance. This constraint on spending would suppress general economic activity.