Brian Benza
7 November 2008
The country's financial system is in a healthy state because the country's foreign exchange reserves have hardly been scathed by the global credit crunch, President Ian Khama said on Monday.
Opening Parliament, Khama said the global financial turmoil would not lead to major changes in the government budget.
"Our own financial sector remains strong and it has not yet been much affected by the credit crunch. Our foreign exchange reserves have also not been compromised and they can cushion any immediate impact on our balance of payments," the President said.
"Due to past savings, government spending can be sustained in the face of any short-term revenue downturn," he said.
In the past few weeks, analysts have strongly warned the government about the possible decline in revenue from diamond sales as the global economy goes into a recession.
Contrary to Khama's sentiments, analysts believe Botswana's economy, which is heavily reliant on diamond export revenues, will be hard hit by the slowdown in the global economy as diamond sales will decline sharply.
Although many economic pundits across the world have projected that African economies are safe from the crisis as their economies are insulated from events on the global markets, economist, Keith Jefferis believes that while financial markets and foreign reserves may be relatively safe, the 'real economy' is vulnerable if the crisis is prolonged.
"The real economy is not safe if this problem persists because we are a small country that is largely dependent on trade," he says, "and when the global economy goes into recession, we are going to be affected as there will be less demand for our exports".
Speaking on development, Khama said that although there has been a steady reduction in poverty over the years from 47 percent in 1994 to 30 percent in 2004, which is projected to fall to 23 percent by next year, there was need to do more.
"There is a mismatch between our graduates' skills and workplace demands, which further contributes to the challenge of unemployment.
"While we have invested heavily in the health sector, we remain reliant on external specialists.
"Agricultural productivity has stagnated, despite past interventions aimed at improving it.
"Though we have put in place structures and policies aimed at increasing foreign direct investment, the inflow of outside capital has fallen short of our expectations," he said .
The President also warned the nation about the urgent need to diversify the economy because of the expected drastic decline in the diamond sector in the next decade.
"Unless we discover new diamond streams of similar magnitude to those in Jwaneng and Orapa, the revenues accruing from diamonds for the country will drastically decline in the coming decade. It is therefore imperative that we find additional income through economic diversification.
"Mr Speaker, our strategy to reach a state of a high income economy in the coming decade stands on two legs. The first is to drive economic
diversification efforts through focused 'hubs'. The second is through the implementation of a range of initiatives that are to be implemented," added the President.
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