Thursday, June 4, 2009

Botswana, one of Africa’s best-managed economies, has been devastated by the fall in the price of diamonds, its main export.

TO BE NOTED: From the FT:

Botswana handed record $1.5bn loan

By Richard Lapper in Johannesburg

Published: June 4 2009 02:47 | Last updated: June 4 2009 02:47

The African Development Bank on Wednesday announced its biggest ever loan facility – a $1.5bn (€1.06bn, £910m) loan to Botswana – in a deal that it said reflected the impact of the global financial crisis and economic slowdown in Africa.

Botswana, one of Africa’s best-managed economies, has been devastated by the fall in the price of diamonds, its main export.

After several years of running budget surpluses the country faces a budget deficit equal to 13.5 per cent of gross domestic product in the current financial year. “The case of Botswana illustrates the impact that the financial crisis is having on even the best managed economies in Africa,” said Donald Kaberuka, the AfDB’s president.

“The crisis which is affecting African countries through different channels is increasing demand for support from international financial institutions.

“I am delighted that the bank has been able to respond quickly and flexibly in this unique case.”

Although Botswana’s situation is extreme, recent weakness in commodity prices and potential falls in income from economic aid and remittances paid by migrant workers have left a number of developing economies vulnerable to current account problems.

At its annual conference last month AfDB agreed to help affected African countries. An official said it had about $4.5bn available to help countries affected by foreign exchange shortfalls or liquidity problems. Additional funds were available under an arrangement negotiated with developed countries and other donors.

“Many other countries are seeking help under the terms of the facility to mitigate the impact of the financial crisis,” said an official. “[But] it is a signal [about how badly Africa is affected] when countries such as Botswana seek assistance,” he added. The previous biggest loan made by the bank was a $500m budget support package last year to Egypt, he said.

This is the first such borrowing from the AfDB by Botswana in 17 years. Previously, Botswana had several times contributed to the replenishment of the African Development Fund, the soft loan window of the Bank Group.

Earlier this year there was speculation Botswana might contribute funds to neighbouring Zimbabwe, where the transitional government led by Morgan Tsvangirai faces acute financial shortages."

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