While the government has previously said the International Monetary Fund (IMF) cannot impose its Structural Adjustment Program on Botswana, Finance Minister Kenneth Matambo delivered a budget inspired by the IMF economic policies.
It was a budget that pleased local business, and probably the IMF, but one that did not cheer up the lower working class. There was assurance from the Minister that the tight budget seeks to create space for the private sector to thrive and create employment in a more diversified economy. That, however, remains to be seen in the wake of anticipated global recession.
The Botswana Confederation of Commerce Industry and Manpower (BOCCIM) said it is not too disappointed with the budget given the current economic climate ÔÇô locally and globally.
“The Honourable Minister has done well to deliver on his promise for a balanced budget. It is a move towards building stability, not incurring more debt and remaining focused on improving efficiency, creating employment opportunities and promoting private sector growth,” said a statement from BOCCIM.
Even as countries continue to cut spending, the IMF has warned of the possibility of even greater reductions in economic growth projections for 2012 in the wake of the anticipated double-dip recession.
“With such low or negative growth rates in the major industrial countries, which are the principal international markets for our exports, the downside risks for our own growth have increased substantially. It is evident that we must adjust our own spending plans accordingly,” Matambo said.
According to the Finance Minister, diamond sales fell by over 70 percent between July and December last year from US$594.3 million to US$160 million. The scary part according to the minister is that there is no guarantee that the trend will be reversed in the near future unless the situation improves in the USA and the Euro area. Matambo said current projections indicate that the volume of diamond sales in 2012 will be almost equal to those for 2011.
“Should this forecast come true, we will be forced to reprioritize our planned expenditure options both at national and individual household levels in light of constrained budget and economic outlook. Further, should the global economy experience a double-dip recession, and given that the country is still in debt, quick and full recovery in the domestic economy might prove difficult, in which case, we all have to be prepared to make sacrifices,” Matambo warned.
Although SAPs are said to be designed for individual countries, they have common guiding principles and features which include export-led growth privatisation and liberalisation and the efficiency of the free market. SAPs are economic policies which countries must follow in order to qualify for new World Bank and International Monetary Fund (IMF) loans and help them make debt repayments on the older debts owed to commercial banks, governments and the World Bank. Matambo announced that the country will use its P1.5 billion budget surplus to service debt.
SAPs generally require countries to devalue their currencies against the dollar, lift import and export restrictions, balance their budgets and not overspend and remove price controls and state subsidies and Matambo has taken that path.
Matambo has not raised taxes, something which the IMF frowns upon. The IMF wants governments to cut spending and Matambo has done just that yet he admits that unemployment continues to be stubbornly high.
According to the Whirled Bank Group, “Structural Adjustment Program” has gained such a negative connotation that the World Bank and IMF launched a new initiative, the Poverty Reduction Strategy Initiative, and makes countries develop what is called Poverty Reduction Strategy Papers. The bank argues that while the name has changed, with PRSPs, the World Bank is still forcing countries to adopt the same types of policies as SAPs.