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Budget speech 2010 Economic outlook Presentation to Debswana – Jwaneng February 24, 2010 Bogolo Kenewendo Econsult Botswana. Global economy: growth & developments Botswana Economy: Economic Output Sector Growth Budget: responses and economic outlook Fiscal policy Other policy responses

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  1. Budget speech 2010 Economic outlookPresentation to Debswana – JwanengFebruary 24, 2010Bogolo Kenewendo Econsult Botswana

  2. 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 (2008-10): • 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. 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. 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. BUDGET Policy Responses & Economic Outlook

  9. 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 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. 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. 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. 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. 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. bogolo@econsult.co.bw • www.econsult.co.bw • 3900575 • 72586591 THANK YOU!

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