Back in March I analyzed and indeed applauded the Bank of Botswana’s decision to run a fiscal deficit in the face of waning exports.  Given the country’s accumulated reserves, as well as then-falling commodity prices, temporarily raiding coffers in order to support domestic consumption—despite the long-term problems posed by such “unorthodox” policy—was a no-brainer for the central bank.

That said, one concern I had (and still have) for Botswana is that the government was underestimating just how grave (prolonged) this global recession would be.  While Botswana is actively attempting to diversify away from diamonds, this transformation will take time.  Moreover, demand for diamonds from Japan and the U.S., its biggest customers, may never truly return.  The extent of the necessary de-leveraging that must take place in the U.S., for example, is staggering.

It appears that at least for the short-term, however, Botswana will have an adequate credit supply, not only from the African Development Bank, but also from the IMF.  But these next few years will be crucial.  How it chooses to appropriate this debt injection right now may indeed determine its fate for decades to come.