DEMOCRACY, DEVELOPMENT, SELF-RELIANCE AND UNITY.

Speaking at a breakfast seminar hosted by First National Bank (FNB) in
Gaborone this week, Dr Jeffries said the 2009/10 budget presented
difficulties for the government as it chose a budget deficit to keep
economic activity going.

However, economists and financial experts do not know how long the
global economic crisis may last, and Dr Jeffries said this paints a
future for the government that depends mostly on diamonds for its
revenue. The 2009/10 budget has a deficit of P13.4 billion, a second
deficit after the overall deficit of P6.20 billion during the 2008/09
financial year.

Dr Jeffries said in the wake of the declining revenue, government may
be forced to either borrow from local financial institutions or tap
into foreign reserves which may be depleted in the long run.

He said experience has shown that the mining sector takes long to
recover from economic turmoil, saying during economic recession of the
1980s, it took long for the diamond sector to register positive growth.

Dr Jeffries said during the 2008/09 financial year, government spending
went up driven mostly by development expenditure which increased by 90
per cent, saying this left little room for government to manoeuvre
during the economic crisis.

He said expectations are that 2009 will be gloom for the world economy,
meaning diamond sales will be lower and said even by 2013 sales will be
lower than in 2007/08.

He said this calls not for short-term but medium-term planning, adding
that the 2009/10 budget only address the short-term solutions, saying a
short-term activity does not contribute to economic diversification.

He called on the government to cut back on unproductive projects.

Talking about the monetary policy, he said Bank of Botswana might need
to review its interest rates especially since inflation rate has been
declining. He said inflation will continue to trend downward and will
reach an upper end of Bank of Botswana inflationary objective set at
three to six per cent.

"I believe rates will go down to support economic growth," he said. Dr
Jeffries said the crawl peg mechanism set following the devaluation of
the Pula in 2006 means the currency is not set by market forces, adding
that all that may be required would be to adjust the rate of crawl.

For his part, the Secretary for Economic and Financial Policy in the
Ministry of Finance and Development Planning, Dr Taufila Nyamadzabo
said not all foreign reserves belong to the government, but some belong
to the private sector and individuals through Bank of Botswana
certificates.

He said diamond revenue will be lower than customs revenue, adding this
will have a negative impact on balance of payments but the idea is to
be able to export more. A Senior Economist from Rand Merchant Bank in
South Africa, Mr Ettienne Le Roux said indications are that the global
economic crisis will continue for sometime although the world will
eventually recover.

He said US property prices continue to drop, stock markets remain
volatile and companies do not borrow money from commercial banks.

Further, he said there is no increase in money supply and liquidity in the global economy.

BOPA