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» 04.06.2009 - Southern Africa gets EPA deal with Europe
» 12.05.2009 - Botswana secures $825 million loan for power plant expansion
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Politics | Economy - Development

Botswana to exercise strict value budget spending, minister

afrol News, 9 February - Botswana, Minister of Finance and Development Planning, Kenneth Mathambo presented the 2010/11 budget proposal calling for a robust transformation of the national economy in response to the challenges facing the country.

“Our response in this budget is to lay the foundation for transformation of our economy. The transformation begins now, but will be an ongoing process. Government, for its part, is committed to a sustainable fiscal position, not burdened by excessive debt, and adhering to the macroeconomic framework of NDP 10 as approved by Parliament. The private sector will have the benefit of a stable business friendly economic environment, with the confidence that a burgeoning Government debt will not crowd out private sector financing,” he said.

He also said while the people and government of Botswana, are grateful to the development partners for their continued support towards the country’s development efforts, such support in these difficult times will even be more critical than before.

“The deepest global economic downturn in recent history caused an unprecedented loss of national income for Botswana. Government revenue to finance development initiatives was severely impaired, opening up a substantial budget deficit. This threatened to stall our hard earned progress towards achieving the aspirations of Vision 2016,” the minister said.

Total revenues and grants for the financial year 2010/11 are forecast at P27.077 billion (about $3.926 billion), whilst total expenditure and net lending are forecast at P39.194 billion, with the net result of a budget deficit amounting to P12.118 billion which is 12.2 percent of forecast 2010/11 GDP of P99.70 billion.

Responding to some of the challenges, the minister said the deficit will be financed by a combination of drawing down on Government's cash balances which were accumulated in surplus years, and by borrowing, largely on the domestic capital market.

“It will be recalled that Government embarked on a programme to develop the domestic capital market which involves issuance of bonds and shorter term treasury bills. The existence of this market will now facilitate the domestic financing of a portion of the deficits for the current and coming financial years. Details of the March 2010 bond issue, in keeping with the programme already approved by Parliament, will be announced by the Bank of Botswana shortly. An updated bond issuance programme will be prepared for consideration by Parliament in the July session,” he explained.

He also said in order to accomplish the national development plan (NDP 10) the government of Botswana will require a substantial reduction of expenditure in the financial years 2011/12 and 2012/13, while revenues recover over those two years, to the point that the country achieves a balanced budget in 2012/13.

He continued that government must do more than simply restore fiscal balance. “The education and health of Batswana will be vital to the transformation process. Government will therefore continue with the heavy investment in those areas. The major infrastructure projects in electricity and water will serve the growing private sector demand for these important services. Privatisation and rationalisation of services provided by Government and parastatals will enhance efficiency, as well as open up new opportunities for citizen participation,” he said.

He further said poverty reduction and taxation policies will be supportive of the transformation, adding that special initiatives, such as the Hubs, will focus attention on specific high return opportunities. “In all of these areas, the limited resources available to Government must deliver more with less. Every Pula of Government spending must create more than a Pula worth of added value,” he stressed.

Speaking on the theme chosen for the 2010/11 Budget Speech, which is "Transforming our Economy after the Crisis: 2010 and Beyond", he said it recognises the challenges faced by the country after the global demand of diamond plunged.

He said with government revenue also having declined, financing of development initiatives also suffered. “The crisis therefore threatens to stall the hard earned progress that we have made towards achieving the aspirations of Vision 2016 as well as the Millennium Development Goals,” he reminded.

“This theme challenges us to find strategies to resume rapid economic growth, while broadening the sources of growth beyond the mineral sector. It makes it imperative that we identify new opportunities for economic growth and find additional sources of Government revenue. To succeed we must foster strategic and highly productive investments in both people and infrastructure, and streamline our policies to enhance private sector participation. We should avoid embarking on new investment initiatives that are not productive, with no future outlook beyond the diamonds era. Instead, this diversification strategy requires us to be particularly rigorous in our evaluation of public sector programmes and projects and prioritise only those that strategically position Botswana to become competitive in the regional and world economy,” he further explained.

Mr Mathambo further pointed out that in moving the country's development agenda forward, care needs to be taken not to overburden our future economic pathway with too much debt, which becomes the first call on future revenues, saying that government must exercise caution in borrowing and in the use of accumulated cash reserves to finance development initiatives. “Every project must more than pay for itself, in terms of current and future benefits, to justify the extra cost of borrowing,” he said.

According to the figures given by the minister in his speech, the latest GDP estimates by the Central Statistics Office indicate that the GDP, measured in current prices, for the four quarters through September 2009 amounted to P86.2 billion. In real terms, GDP showed a decline of 4.6 percent over the previous four quarters. He said the fall in real output was largely attributed to the decline in real value added by the mining industry, which recorded a decline of 31.4 percent, while the rest of the economy grew at 11.6 percent over the same period.

“The twelve months figures however, mask the sharpness of the economic downturn. In the fourth quarter of 2008 for instance, the overall economy contracted by 6.3 percent, and then by a further 20.5 percent in the first quarter of 2009, before recovering some of the lost output in the quarter ending June 2009 with a 24.9 percent GDP growth in real terms. The economy continued to recover in the third quarter ending September 2009 with a 4.1 percent GDP growth in real terms,” he said.

He said looking beyond the actual GDP recorded in the third quarter of 2009 calendar year, the country is projecting a gradual recovery of the world diamond market, saying the dollar value of Debswana's diamond sales is expected to gradually return to the level achieved in the financial year 2007/08 by 2012/13.

He also said in the meantime, the rest of the economy will continue with modest real growth, in part because Botswana has avoided a sharp reduction of government's spending. “We, therefore, project overall real GDP growth for 2009/10 financial year to be about zero, and then about 5 percent in 2010/11,” Mr Mathambo said.

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