Friday, April 16, 2021

Matambo warns of tough times as U.S, Eurozone crises drag one

The Government of Botswana on Friday warned that the country faces tough economic times ahead, owing to lack of demand emanating from recurring problems in the Eurozone and United States—which are key markets for Botswana exports.

Finance and Development Planning minister, Kenneth Matambo, told reporters the revelation is not to scare Batswana, but to alert the public as the events unfold.

“While we are not trying to scare anyone (while we see events unfold), such events affect Batswana and everyone. It is fair to alert our people,” Matambo said.

The unfolding events that Matambo is referring to are the debt crisis in Europe and the U.S. In America, President Barack Obama is facing difficulties because there are problems with the U.S economy, which is contracting rather than expanding.

The U.S is also having problems of balancing its budget and it is struggling to maintain the debt levels in a bid to avoid them shooting through the ceiling. In the Eurozone, there are still difficulties in countries like Greece and Italy that are dragging others into the mess.

Matambo warned that if these problems are not addressed, they can spread to other places like what happened when recession first hit in 2008.

The problems have forced the two markets to adjust growth forecasts; in the U.S they revised growth rate downwards to 1.3 percent while in the Eurozone growth is seen at less than 1 percent.

“This makes us to be alert and remember what happened in 2008. These countries will have less capacity to buy our diamonds,” warned the minister.

During the course of 2011, diamond sales were better at the beginning of the year, but are ending the year at their lowest. Figures provided showed that diamond sales were US$ 436 million in February then rose to US$ 464 million in May.

The figures were the highest in June at US$ 670 million, but fell in July to US$ 594 million. The sales fell again in August to US$ 529 million and were worse in September as sales were US$ 455 million.

There was no sight in October. The worst months were November and December as sales figures stood at US$ 184 million and US$ 160 million, respectively. Botswana sells its diamonds 10 times in a year.

Matambo said there has been recovery, but the recovery has not been robust enough, exacerbated by fears of double deep recession.

“We get worried. All Batswana should be worried,” the minister said. “We are seeing this trend in the advanced economies where growth is revised downwards. We are keeping our fingers crossed that things improve.”

The World Bank and the International Monetary Fund (IMF) had projected that the world economy was going to grow by 4.5 percent in 2011, but the figure was revised downwards to 4 percent because they realised that recovery was not robust enough.

In Botswana, GDP growth was forecast at 6.8 percent in 2011 but, because of events abroad, this forecast has been revised.

However, Botswana has not yet reviewed her 2012 forecast of 7.1 percent, but it could change if fundamentals do not improve.

Asked what lessons Botswana had learnt from the recession, the minister admitted there are a couple of them.

“One of the lessons we learnt is that our economy should be diversified. If we rely on one commodity, it is obviously dangerous; your economy will be hard hit and we were.”

However, he said the economy was prepared as it had something to fall back to, including the foreign reserves, for which the government has been, in the past, criticised for not using.

“Otherwise this economy will have collapsed,” he said. “We came with a stimulus to run with a deficit and keep the economy running rather than taking people to the streets,” he added.

Matambo added that the country had a better buffer (foreign reserves) and said if the country had squandered everything; it would have been a disaster. The hope is that the country will start re-building the buffer as government revenues improve.

During the recession, Botswana was able to finance the deficit through debt and reserves.

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