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Africa Economic Institute

African Development Bank - AfDB lends $1.5 billion to Botswana

Botswana will receive a loan of $1.5 billion from the African Development Bank (AfDB) for budget support the country to recover from a global economic crisis. The loan was to help Botswana fund a budget deficit estimated at 13.5 percent of GDP caused by falling commodity prices, particularly diamonds. The…

In the past, Botswana had contributed funds for the bank to loan to other governments. The nation never had financial help before, however the global crisis affected the country as well.

The nation has an impressive economic record (the country has had the highest average economic rate in the world, averaging about 9 percent per year between 1966 to 1999) has been built on a foundation of diamond mining, prudent fiscal policies, international financial and technical assistance, and a cautious foreign policy. It is rated the least corrupt country in Africa, according to an international corruption watchdog.

AfDB’s loan will help to cover part of the gap in the government’s 2009/2010 budget deficit currently estimated at 13.5 percent of GDP caused by falling commodity prices, particularly diamonds. The crisis which is affecting African countries through different channels is increasing demands for support from the international financial institutions including the Bank.

“The case of Botswana illustrates the impact that the financial crisis is having on even the best managed economies in Africa. I am delighted that the Bank has been able to respond quickly and flexibly in this “unique case” within the Bank’s framework of response to the financial crisis”, said Donald Kaberuka, the President of the Bank. “The Bank stands ready to assist its regional member countries during these times of global economic turbulence by being responsive and delivering its products and services in a timely fashion, and in a manner that addresses the differentiated needs and challenges facing each member country,” AfDB Governance Department Director, Gabriel Negatu.

The Evolution One Fund aims to “The negative impact of the global financial and economic crisis is putting Botswana’s generally sound macroeconomic fundamentals at risk. In order to cover the budget deficit, while sustaining the country’s good credit rating and solvency, as well as macroeconomic stability, the government is considering a mix of financing options, including drawing down on its reserves, domestic bond issue and borrowing internationally. The government’s first response is to borrow from international Financial Institutions (IFIs) such as the AfDB and the World Bank. The choice of not drawing down on reserves during this financial year illustrates the government’s prudent economic management. This cautious approach is legitimate in the near-term given that the magnitude of the effects of the crisis- which is still unfolding - and not fully known yet. “ said Negatu.