Botswana’s budget deficit will widen to 13.4 billion pula ($1.7 billion) in the year through March 2010, compared with an estimated 6.2 billion in the current fiscal year, in order to boost growth in response to economic growth for the financial year to June 2008 that slowed to 3.3%, from 5.3% previously. Analysts forecast that the current slowdown in government revenues will continue until 2010-11, and Finance Minister Baledzi Gaolathe noted that the deficit would be financed through reserves.
Botswana’s tempered GDP can be attributed primarily to decreased demand for diamonds (although there has also been a sharp decline in commodity prices for other minerals like copper, nickel, and to a lesser extent gold). Botswana is the world’s largest diamond producer, whose production accounts for roughly two-thirds of the government’s revenue. Diamond sales will likely drop by half this year, Gaolathe said, as a recession in the U.S., the biggest consumer of the gems, cuts demand. Diamond sales fell 17% to 28.9 million carats in 2008, and prices will likely fall up to 15% this year, while production is expected to decline by 35%. Gaolathe noted that new companies like DiamonEx and Messina Copper, which recently commissioned their operations, are most vulnerable to the crisis since they still have to service their debts and have no cash reserves. Finally, growth prospects may also be undermined by the current electricity shortages in the region, Galoathe commented. The country is currently feeling the adverse affects of power shortages from South Africa and Mozambique, upon whom it still relies for a large portion of its electricity.