Finance and Development Planning Minister, Baledzi Gaolathe, this week leapt to the defence of the African Development Bank loan and urged parliament to authorize it, adding that its aim is geared towards the diversification of the economy and support of the privatization drive at the height of global financial crisis.
Gaolathe’s plea comes at a time when government is faced with a storm of criticisms from some quarters, charging that the ruling Botswana Democratic Party (BDP) has, since independence, neglected other sectors– particularly agriculture — at the preference of the exhaustible mineral sector, especially diamonds.
At independence, agriculture nourished Batswana and was the mainstay of the economy, accounting for 40% of the GDP but has currently dwindled to a mere 3%.
The opposition argues that all these are blunders of the government “which believed that the exhaustible diamonds were forever”.
The global crisis, the cynics argue, is a blessing in disguise, dictating to the government to fast track the diversification of the economy.
When presenting the ADB loan for the second reading in parliament, Gaolathe said: “The 2009/2010 budget was formulated under very difficult global financial and economic conditions. The performance of the diamond industry, which is the mainstay of the economy, has been hit hard by the financial and economic crisis in the major markets of the USA, Japan and Europe.”
The diamond market almost collapsed at the close of last year when Debswana was forced to suspend mining operations for four months up to April as the major markets, including polishes and cutters, were severely hit by the global credit crunch.
The rough diamond sector accounts for 33 percent of the GDP and over 50 percent of the government revenue. And this year, government is hoping to get about 50 percent of what it did not get at the 2007 bumper prices.
He added, “Thus after many years of running budget surpluses, Botswana now has to contend with a huge deficit of up to 13.5 percent of GDP for 2009/2010. This development and the fact that diamond production is expected to decrease in the coming years, suggests that diversification and a vibrant private sector are essential to ensure long term sustainability of the economy.”
To this end, government needs resources to implement key infrastructural development projects, many of which are ongoing and are essential to enhance the delivery of social services, improve the prospects of growth, create employment and reduce poverty, he argued, adding “the ADB loan will act as a stimulus by increasing aggregate demand in the economy leading to the development of private sector and creation of employment opportunities.”
ADB offered US $1.5 billion loans on the back of ongoing key reform programmes by government, which include a raft of reforms, privatization and private sector participation in the economy, improvement of competitiveness and trade policies and financial sector reform.
Besides the emergence of a vibrant non-mineral private sector, greater application of market efficiencies, improved private sector regional competitiveness and improved regulation of non-bank financial institutions, the direct outcomes of the program the government intends to achieve include improved capital market development, increased FDI inflows, improved governance in the financial sector and increased citizen-owned business participation in the capital market.
In addition, Gaolathe underscored that “there will be need for enhanced diversification towards the service export sector.”
The program is estimated to cost approximately P10, 5 billion with the government entitled to repay for a period of 15 years while the grace period takes 5 years with the interest rate of 1.17 percent, 6 months LIBOR Plus Cost Margin plus 40 basis points.
The government of Botswana has an option to repay any portion of the principal amount outstanding and also to fix the interest rate applicable at any time, he said.
Although parliament unanimously adopted the bill, opposition MPs lamented government’s reluctance to embrace opinions from their side, arguing that the issue of diversification was overdue as was long echoed by the opposition parties, particularly in the area of agriculture, which has plummeted to almost zero.
“The agricultural sector could be playing a pivotal role in the midst of this global crisis but the negligent governance of the BDP allowed the sector to degenerate to nothingness,” charged South East North MP, Olebile Gaborone.
Outspoken Tonota South MP, Pono Moatlhodi, and Kanye North MP, Calvin Batsile, called for extra care with the revenue, adding “the same with public coffers, which needed to be utilized diligently with the intended purposes reached”.