1. Budget speech 2010 Economic outlook Presentation to Debswana – Jwaneng February 24, 2010 Bogolo Kenewendo Econsult Botswana

2. Outline Global economy: growth & developments Botswana Economy:
Economic Output
Sector Growth
Budget: responses and economic outlook
Fiscal policy
Other policy responses
Botswana outlook
Outline

3. Four quarters of negative growth, with total decline in GDP of:
USA – 3.6%
Euro zone – 5.1%
Japan – 6.2%
Three year growth ( ):
USA +1.5%
Euro zone –2.0%
Japan – 4.0%
Global growth slowdown – worse in advanced economies – but recovery well under way

4. Botswana Economy

5. Budget Theme: Transforming our economy post the global crisis
Identifying new opportunities
Finding additional sources of govt. rev
Programs prioritization
Every project must pay for itself: future and current benefits
Restoring sustainability in public finances
Reduce risk of too much debt
Exercise caution in use of reserves & borrowing
Budget Theme: Transforming our economy post the global crisis

6. Real Economic Output Deep fall in mining sector
Healthy growth in non-mining sector - driven by govt
Some diversification
Real Economic Output

7. Sector growth: export sectors hard hit

8. Policy Responses & Economic Outlook
BUDGET
Policy Responses & Economic Outlook

9. Fiscal Policy Budget surpluses between 04 till o8 then deficit
Steady decline in revenue
Managing expenditure: modest cut in 2010/11, more to come
Fiscal Policy

10. Deficit Deficit Rule of thumb: 3% of GDP
Deficit of 3-5% of GDP is a criteria for most monetary union convergence e.g. SADC
Deficit of 12% of GDP is unsustainable
Deficit

11. Expenditure Sharp increase in development spending in recent years
But recurrent spending makes up majority of total
Both need to be cut for sustainability
Expenditure

12. Sources of revenue

13. Govt. Net Financial Position
Fast growth in net financial assets (savings minus debt) between 06 & 09
Deficit in 08/09 led to a decline
Projected large deficits in 2009/10 & 2010/11 will consume much of what is left
Credit rating downgrade is direct result
Govt. Net Financial Position

14. Tax increase 2% VAT increase VAT still low by regional standards
Reflects govt’s need for other sources of revenue
But will cut real household income, depressed consumer spending
Headline corporate tax still the same; effective rate increased
Medium term structural change – more reliance on taxes on expenditure and income
Tax increase

15. Deficit problem reflects medium-term structural change
Accentuated by global crisis – but not caused by it
Global recovery will not remove need for budget adjustment
Govt spending must be cut in real terms, following declining revenue trends
Otherwise debt will become unsustainable
Greater economic efficiency in spending needed
Improved planning and budgeting
Key Budget Issues

16. Outlook - Botswana Speed and stability of diamond market recovery:
promising but will take several years with slow US recovery
Other mining/commodities
prospecting/project development now recovering (China demand)
Non-mining export sector (e.g. textiles, tourism)
impact of global recession still being felt
Economic recovery in SA lagging global emerging markets
not supportive for Botswana
Overall GDP growth likely to bounce back as diamond mining recovers
Non-mining growth likely to decline:
Consumer spending squeezed by tax increases, debt & declining real incomes
Slowdown in government spending
But helped by lower interest rates
Concern about unemployment
No major redundancies
But few new jobs being created
Outlook - Botswana

17.
THANK YOU!