afrol News - November 1, 2002

According to the latest International Monetary Fund (IMF) report on Botswana, released today, three decades of substantial growth have now turned into stagnation. The main reason is said to be lower revenues of Botswana's diamond trade, but also increased health expenditure to meet the AIDS pandemic are taking their toll.

Botswana holds two records; the strongest durable economic growth in Africa and the world's highest prevalence of HIV and AIDS infected.

- Abundant diamond resources, coupled with sound macroeconomic policies, according to the IMF had produced Botswana's high growth rates. Over the past 30 years, real per capita GDP growth averaged more than 7 percent a year, allowing Botswana to move from one of the poorest countries in the world to a position as a middle-income country today.

Botswana however remains heavily dependent on its diamond sector: it accounts for more than one-third of GDP and 70 percent of export earnings. The temporary decline in global diamond demand and a drop in Botswana's diamond production therefore had produced a "negative shock" to the Batswana economy in 2001/02.

Real GDP growth thus had slipped to an estimated 1 and one-fourth percent in 2001/02 (July-June) - as opposed to 9.2 percent in year 2000 - largely reflecting the negative trends in the diamond trade. The non-mining sectors however had "performed better, especially the service industries." Their success was in part "a product of Botswana's market-friendly environment, sound macroeconomic policies, and investments in education and physical infrastructure," the IMF assesses.

Other negative shocks had been the near 40 percent depreciation in the South African rand in 2001, and the regional food crisis. Also the Batswana pula had been affected by the crumbling rand and the regional crisis produced by the political situation in Zimbabwe. The regional food crisis further led food prices to soar in Botswana, which largely is dependent on food imports.

The IMF however "commended the authorities for pursuing prudent macroeconomic policies, which, together with Botswana's substantial financial reserves, have helped the country weather these adverse external shocks." Negative growth had been avoided despite of these external shocks, which all may be of a temporal nature.

More a reason of concern is however the creeping effect the AIDS pandemic has on Botswana's economy and long term growth possibilities. Health spending has already increased by 50 percent in the 2002/03 (April-March) compared to the year before. This accounts for most of the 16 percent rise in government spending this year and may indicate an upcoming spending of the country's foreign reserves.

With close to 40 percent of Botswana's adult population being HIV infected, the pandemic is also influencing the country's productivity. A substantial part of Botswana's human resources, the productive population, has died, is dying or is weakened by the virus.

- The long-term cost implications of HIV/AIDS are unclear, the IMF analysts admit. But it remained clear that "HIV/AIDS is Botswana's foremost economic and social challenge." While the cost implications of the authorities' response were still highly uncertain, the analysts noted that "its budgetary impact is likely to be very high over time."

Looking ahead, Botswana's medium-term growth prospects would "depend on decisive action to contain the enormous social and economic costs of the HIV/AIDS pandemic," the IMF report says.

The IMF however commended "the government's head-on approach to the challenges of HIV/AIDS, by adopting a coordinated response that aims at preventing further spread of the infection, alleviating suffering, and treating all patients with advanced medication." It also welcomed the establishment of a national AIDS coordinating agency to help spearhead the program at the highest political level and help to mobilise international support.

The Gaborone government was slow in reacting to the AIDS pandemic, thus wasting important years that could have hindered its uncontrolled spread. During the last two years, however, the government has engaged in a full scale war against the virus, which is praised by experts and the international community.

Sources: Based on IMF and afrol archives

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