Razia Khana, Standard Chartered Bank’s Chief Economist-Africa Global Research, Razia Khan says Botswana’s announcement of an Economic Stimulus Plan (ESP) is a positive development as it introduces a countercyclical policy thrust, at a time when economic growth is expected to be weak because of softening demand for diamonds and a severe regional drought.
Responding to Sunday Standard enquiries on the bank’s thoughts on the State of the Nation Address (SONA), Khan said given the long-known vulnerabilities of Botswana’s growth model, some would argue that there is a need for a longer-term program of structural reform to drive more meaningful diversification, even when times are good.
“Much more than just providing a stimulus to the economy through infrastructure spending, this might address weaknesses in Botswana’s business climate on regulations, work permits, the cost of government more comprehensively, really allowing the economy to build on its potential,” said Khan.
Further she stated that given the severity of the drought, which is beyond the control of the authorities, and the weakness of diamond demand from a slowdown in China, it is going to be a testing time for the economy.
“It’s at times like these that economic reforms need to be focused on the long-term, driving sustainable economic solutions,” said Khan.
She added that while for now Botswana has the resources to invest in a domestic stimulus program, the surplus has been built from the sale of a finite resource – diamonds. As such, she said, Botswana has to generate more financial surplus in the future, one that is able to renew itself, and drive greater wealth accumulation for generations yet to come.
“More construction, more infrastructure investment, more activity in time, as the proceeds of that spending are felt in the economy are likely to take place,” stated Khan.
In his address, President Ian Khama indicated that the latest estimates from Statistics Botswana indicate that in real terms, the domestic economy expanded by 4.4 percent in 2014 compared to 9.3 percent in 2013, due to decreased growth in both mining and non-mining sectors. Growth in the mining sector was 4.5 percent in 2014, down from the exceptional 23.9 percent registered in 2013, resulting from a general decline in commodity prices including weakened demand for diamonds. The non-mining sector also registered lower growth at 4.4 percent in 2014 as compared to 6.8 percent in 2013, with the challenges of the water and electricity sectors being especially difficult. The latest IMF World Economic outlook report projects a modest growth rate of 3.1 percent for the world economy in 2015. Due to the steeper than originally projected slowdown in mineral revenue, the country’s expected domestic economic growth has also been adjusted downwards to 2.6 percent this year.
“In 2015 our domestic inflation rate continued to fall within the Bank of Botswana’s target of 3ÔÇô6 percent, with monthly inflation ranging from 2.8 percent and 3.6 percent during the first half of the year. The trend is expected to continue in the coming months, due in part to lower fuel prices,” said Khama.