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BOTSWANA: Controversy over Government Loan to Fund Privatisation

Vusumuzi Sifile

GABORONE, Jul 10 2009 (IPS) - Controversy has erupted over a decision by Botswana’s government to accept a loan from the African Development Bank, a departure from over two decades of running Africa’s "model economy" without borrowing.

In June the country borrowed 1,5 billion dollars from the African Development Bank (AfDB) to finance "key economic reform programmes", among them the privatisation of some state-owned enterprises, as part of its effort to minimise the effects of the global economic crisis on its economy.

"The proposed loan from the African Development Bank will act as a stimulus by increasing aggregate demand in the economy, leading to the development of the private sector and creation of employment opportunities," minister of finance and development planning Baledzi Gaolathe told parliament.

In a political turnabout, Gaolathe, who earlier this year indicated Botswana had enough finances in its reserves, said the loan would be used to support ongoing economic reform initiatives.

"The African Development Bank has offered the loan on the back of ongoing key reform programmes by government. This includes reform in the areas of privatisation and private sector participation the economy, improvement of competitiveness and trade policies and financial sector reform," Gaolathe added.

This has provoked criticism from the political opposition who believes the loan would expose the economy to further problems. They have vowed to tackle the issue head-on during the ongoing parliamentary debate on the loan.

"I have serious concerns about the rate at which our country is raising loans," said Dumelang Saleshando, member of parliament for Gaborone Central who is also the spokesperson of the opposition Botswana Congress Party (BCP).

He said parliament was also discussing two other loans from the World Bank and the Organisation of the Petroleum Exporting Countries (OPEC) Fund for International Development.

"The AfDB loan is primarily meant to cover for the deficit. In the budget speech of this year, the minister had indicated that the deficit will be financed largely from the foreign reserves. This loan is about 11 billion pula (1,5 billion dollars) while the deficit stands at 13 billion pula (1,86 billion dollars)," Saleshando told IPS.

"It appears that the plan is no longer to use the reserves but to secure loans. Unfortunately the Minister is not indicating what has necessitated the change of plan," added the youthful legislator with reference to Gaolathe’s statement that the country had enough reserves to sustain the budget when he presented the 2009/2010 budget in Feb.

As a result of the loan, some legal issues that have been overlooked during the period when Botswana wasn’t borrowing from international institutions have started to come up. Among other things, Saleshando said it was "now occurring to me that there is no act of parliament that empowers the minister to raise loans externally.

"The Finance and Audit Act only makes reference to powers to secure loans within the domestic market. With the domestic loans there is a limit imposed by the Act."

Earlier, the opposition Botswana National Front’s spokesperson Moeti Mohwasa told IPS that the best option was for Botswana to use its reserves. He stated that the government would only be able to boost the economy by spending more from its reserves.

Business leaders, however, view the loan as the only viable and immediate way out. While commending the government for borrowing money to rescue the economy from turmoil, Blackie Marole, the managing director of Debswana Mining Company, argued that there was need to look beyond the current global economic crisis.

"We must commend government but what happens if the crisis continue? Will they have the willingness to continue to borrow?" asked Marole.

Debswana is a 50-50 diamond mining venture between the government of Botswana and the De Beers Group. The company is the backbone of the economy.

President of the Botswana Confederation of Commerce, Industry and Manufacturing (BOCCIM), Modiri Mbaakanyi, shared Marole’s view.

"I believe if the government did not get this stimulus money, we could have more serious consequences than we are having now," argued Mbaakanyi. He was speaking at his organisation’s annual general meeting in Gaborone on Jun 23.

Independent economic analyst Keith Jefferies pointed out at the Fourth Capital Resource Conference in Gaborone that the government shouldn’t look at the loan as the best alternative, but should re-establish discipline in the financial sector.

"Loans should not be seen as an alternative means for financing deficit. They do not make public spending sustainable," declared Jefferies.

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