Botswana GDP shrank 11,5 per cent in year to June 2009

JOHANNESBURG – Botswana’s economy probably shrank 11,5 per cent in the financial year to the end of June 2009 due to a collapse in sales of diamonds, its key export, the finance ministry said on Wednesday.

Acting Finance Minister Kenneth Matambo also forecast a further contraction of 12,8 per cent in the 12 months ending in June 2010, before projecting growth of seven per cent for the southern African economy in the following year.The latest forecasts paint a much steeper slowdown – and far later recovery – than initially expected for the world’s biggest producer of diamonds, whose sales plummeted last year when economic downturn started to hit rich countries.’2008/09 is also expected to decline by … 11,5 per cent,’ a senior finance ministry official told Reuters in Johannesburg by email. ‘The main reason for the significant decline is explained by the deterioration in the diamond market.’In March, ratings agency Moody’s said a steep and relatively long global recession would probably cause Botswana’s economy to shrink 5,2 per cent in 2008/09 and 6,2 per cent in 2009/10.’The latest forecasts from the ministry indicate that real GDP will fall by 12,8 per cent during 2009/10, and will register a seven per cent increase for 2010/11,’ Matambo said in a written reply to questions from Reuters.In Botswana, the financial year runs from July to June and the government has traditionally calculated growth on that basis rather than calendar years.The International Monetary Fund has forecast a contraction of 10,3 per cent for the 2009 calendar year. Botswana was forced to close its diamond mines for several months – the first shutdown in the industry’s 40-year history.Despite the dramatic slowdown, President Ian Khama, a UK-trained army lieutenant-general and son of the country’s first president, is expected to win another five years in office in elections on October 16.Khama’s Botswana Democratic Party (BDP) has been in power since independence in 1966.Matambo said sales of diamonds, which account for nearly 40 per cent of the economy and the same proportion of government cash, had been increasing since April.However, ‘signs are that there might be no dramatic recovery of the diamond markets during the remainder of the year and for most part of 2010 until the rough and polished diamonds in the pipeline have been reduced,’ he said.He also said there was a high possibility of the government increasing its US dollar borrowing to fund the holes in its budget caused by shortfalls in mining revenues.The crisis has forced Botswana, seen as one of Africa’s best-run countries with a history of budget surpluses and the region’s strongest currency, to plunge itself into debt to keep afloat.In May, it had to turn to South Africa’s Standard Bank and Industrial and Commercial Bank of China for US$825 million needed for a new power station, and in June received a US$1,5 billion budget bailout from the African Development Bank.Despite this, economists say the government will have little option but to cut public spending from the current 40 per cent of GDP level – relatively lofty levels for the lower-middle income country of 1.8 million people.-Nampa-Reuters