Wednesday, May 12, 2021

The return of hard economic times

It is quite clear that the recent announcement made by President Ian Khama relating to the upcoming stimulus package has ignited yet another debate amongst the locals. What is also quite clear is the fact that no one, including both government and independent economists knows the form that this big animal being the ‘stimulus package’ will take. 

The general sentiment however is that although the government of Botswana seems to be ready to draw some huge amount from the P88 billion foreign reserves, the details of how much will be drawn and how it will correct the “new norm” are still sketchy. 

Leading independent economist, Dr Keith Jefferies of Econsult, note in his quarterly economic review (Q3:2015) that the analysis of the likely impact of the stimulus package is difficult in the absence of information regarding its content, timing, magnitude and funding.

However the former Bank of Botswana Deputy Governor further state that indications are that the programme will be large, and is likely to be implemented as soon as possible. Fiscally, the impact will almost certainly be a move to larger budget deficits, over and above those that would be likely to result from the impact of the global slowdown and reduced mineral revenues. 

Despite the absence of much detail, Jefferies argues that the stimulus will in no doubt result in a short-term boost to economic activity and some job creation, particularly in construction and related activities such as building materials supplies, architects, surveyors and engineers.

Another independent economist, Moatlhodi Sebabole, who is also a researcher manager at First National Bank Botswana (FNBB) decry lack of depth on details surrounding the much talked about stimulus package. Moatlhodi said Friday that the current market conditions are characterized by tight economic conditions with both consumer and business facing hard economic challenges. 

THE HARDSHIPS 

The stimulus package announcement came shortly after government slashed its 2015 growth forecast from 4.9 percent to 2.6 percent in September, saying the country will post a budget deficit this year. Diamonds account for around 75 percent of Botswana’s foreign exchange earnings and 30 percent of GDP, but gem demand has slowed since late 2014 as middlemen who buy rough stones struggle with a stronger dollar and liquidity problems. The value of rough diamond exports from Botswana’s mines fell 15 percent in the first six months of the year. Available figures show that the domestic economy’s past growth was spurred by mining output which outpaced non-mining private sector growth. However, mineral revenues are expected to decline in the short-to-medium term while SACU revenues are under threat. 

This has resulted in business losing confidence in the local economy. A survey carried by the central bank shows that business confidence has since deteriorated from 52 percent in September 2014 to 44 percent in March

2015. 

Although there is increased optimism in periods ahead, Moatlhodi said Friday that business continues to face challenges such as rise in costs of inputs, difficulties in accessing finance as well as weak demand prospects. On the other hand, consumers are also facing their own challenges which entail eroded purchasing power, high level of indebtness, high unemployment rate, income inequality as well as high cost of debt. 

However President Ian Khama is optimistic that the programme shall bring to an end the current crisis of unemployment facing the domestic economy. Khama said the economic stimulus budget would be spread in all areas; building construction, road construction, tourism development, increased agricultural production and manufacturing. As it stands, only time will tell whether President Khama’s stimulus package will avert the anticipated return to hard economic times. 

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