Despite being pummeled by the global crisis--diamond production and exports contracted by 50 percent in 2009--Botswana was in the enviable position of being able to cushion its people and the economy, thanks to large savings accumulated over the years and access to inexpensive financing.
But it may have overdone the cushioning. The fiscal deficit for the 2009/10 budget year is projected at 14 percent of GDP.
Although diamond prices are expected to rebound, production and exports will remain below pre-crisis levels, and another double-digit deficit is expected in 2010/11. Not even Botswana can maintain double-digit deficits for long without jeopardizing its fiscal sustainability, especially given the specter of a rapid fall in diamond production--and eventual depletion of known reserves--in a few decades.
At the same time, cutting spending is particularly painful in a country like Botswana where government expenditures are pivotal to economic activity and to sustaining non-mining private sector.
Some tough choices ahead for one of Africa's best-managed economies.