Economy in ICU

SHARE   |   Tuesday, 25 August 2015   |   By Kabelo Adamson

• Paying price of failing to diversify from Diamonds
• Diamonds sales take a heavy knock
• Reliance on Customs also a concern

Domestic economic growth rate is forecast at 2.6 percent for 2015 as a result of expected decrease in demand for diamonds in the global market. This is according to a draft 2016/17 Budget Strategy Paper (BPS) from the Ministry of Finance and Development Planning.
The BSP, which sets the tone for the 2016/17 budget, indicates that the down risk of these projections continues to be the country’s high dependence on diamonds, whose demand and prices are subject to global fluctuations.
The paper points out continued heavy reliance on the mining sector poses systemic risk to the country’s economy given the instability of diamond prices in the global market. The reduction in the growth rate is a result of lack of economic diversification. While sectors such as transport and communication, construction and hotels show signs of positive growth, the economy is still heavily dependent on the mining sector which is main contributor to the main GDP, accounting for 22.9 percent in 2014 and 21.9 percent in 2013.
Faced with challenges of unemployment and poverty, the BSP points out that these challenges will require concerted efforts to promote inclusive growth and economic diversification which is believed to be possible and to achieve that priority will be diverted to investing in economic infrastructure and human capital development.
This will include up-scaling investment in critical economic infrastructure such as roads, water and power generation at the same time ensuring sufficient investment in social sectors such as health and education.
It is stated that the government is committed to address economic challenges facing the country which are the need to maintain macroeconomic stability and promote competitiveness of domestic industries in the regional and global markets.
Once the issues are addressed, the results are expected to contribute to accelerating economic diversification, creating employment opportunities and eradicate abject poverty. When it comes to maintaining macroeconomic stability, it is reported that Botswana has been able to achieve it through a mix of fiscal and monetary policy frameworks and sound fiscal system.
It is, however, cautioned that the change in trading patterns between Botswana and its trading partners calls for continuous macroeconomic policies, particularly the exchange rate policy to ensure continued macroeconomic stability and competitiveness.
According to the BSP, the government is said to be concerned about the economy’s reliance on two revenue sources; mineral and customs as it is major risk to the country’s sustainable growth as whole. While minerals are subject to the unpredictability of global markets of diamonds, the ongoing SACU negotiations are said to create uncertainties over the future of SACU revenues.
Faced with this uncertain future, the government has now taken a different approach and applied prudent expenditure control by applying strict criteria when appraising projects so that only viable ones are financed. Priority will be given to maintenance of the existing infrastructure, funding of high impact projects that contribute to growth in the economy as well as liquidating projects capable of generating additional revenue.
As a way of dealing with the harsh reality, the government has outlined priorities for the 2016/17 fiscal year. These include completion of ongoing projects, maintenance and ensuring functionality of existing infrastructure, investment in high impact projects, strengthening human capital, improving total factor productivity and social protection programmes.

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