Global headwinds weigh on economy
Isaac Pinielo | Wednesday November 4, 2015 16:15
Speaking at an economic dialogue hosted by Business Botswana and BIHL in Gaborone recently, research manager at First National Bank of Botswana (FNBB), Moatlhodi Sebabole said Botswana is facing not only lower growth but also a budget deficit driven mainly by the downturn in global diamond market. “High rough diamond prices, difficulty in access for financing for sightholders and lower demand for diamonds has affected diamond sales and revenue, thus resulting in increased likelihood of budget deficit,” said Sebabole.
According to the researcher, another headwind comes from the drought, which he said has resulted in weak performance of the agriculture sector.
He also said foreign exchange market volatilities, particularly a strong dollar versus weaker emerging markets currencies, have affected demand for diamonds, as they were relatively more expensive in US Dollar terms.
On the local economy, Sebabole said fiscal balance would undergo marginal deficits in at least the next two years, mostly due to lower mineral and South African Customs Union (SACU) revenues.
Sebabole also indicated that real gross domestic product (GDP) growth will remain below three percent in the current year due to supply side constraints (water and electricity shortages) and lower diamond activity.
Despite the low interest rate environment, Sebabole said credit extension remains very low at seven percent year-on-year growth levels and this reflects tighter credit conditions as business and households are under pressure.
He pointed out that low international oil prices have benefited inflation which trends lower, adding however that the masses are not benefiting as the public transport fares have not changed and businesses are not passing on the benefit of reduced transport and logistical costs.
Sebabole said fiscal belt tightening has seen targeted financing by government as well as lower spending patterns, adding that lower credit and consumer pressures have resulted in reduced consumption in the economy.
“Fixed investments have also reduced which shows businesses are cautious on expansion and investments, given an operational landscape, which has become turbulent,” he said. He further stated that sustainable growth for the country would require synergy between policies and politics, and investment climate.
He said the economic stimulus package (ESP) is as good as its ability to generate sustainable and measurable return on investment, such as private sector participation, sustainable employment creation, import substitution, export oriented and downstream economic activity.
Sebabole said implementation of National Development Plan (NDP 11) and vision 2036 ought to be results-oriented so that effectiveness and efficiency is reinforced.
He said key investments will be driven by increased business confidence, engagement with private sector through means like public-private-partnership.