Southern African Economy Hit by Diamond Demand Drop; Seeks Recovery through Infrastructure and Bonds

Summary

  • The economy of the southern African nation was negatively impacted by a decrease in diamond demand last year, which account for around 30% of its revenue and 70% of its foreign exchange earnings.
  • Finance Minister Peggy Serame has indicated a lower estimated growth of 3.2% in 2023 down from the earlier predicted 3.8%, but anticipates recovery to 4.2% in 2024 and 5.4% in 2025.
  • The 2024/25 fiscal year is set to bear a higher budget deficit of 8.69 billion pula or $631 million as compared to the estimated 7.13 billion pula deficit of the current fiscal year.
  • Infrastructure development projects spanning the water, transport, and energy sectors will see a spending increase of over 33% in the 2024/25 fiscal year.
  • The government will aim to garner additional resources through the issuance of financial tools such as inflation-linked bonds and green bonds.

Economic Impact from Diamond Decline

The economy of the southern African nation faced a setback last year due to a drop in the demand for diamonds. These precious stones contribute nearly 30% to its revenue and 70% to its foreign exchange earnings.

Anticipated Economical Growth

Peggy Serame, the Finance Minister, reported a lower projected growth for 2023 at 3.2%, a downgrade from the previous 3.8% prediction. However, she expects an upturn to 4.2% this year and 5.4% in 2025, banking on global economic recovery.

Projected Budget Deficit

The forecast for the budget deficit for the fiscal year 2024/25 is at the higher end – 8.69 billion pula ($631 million) compared to an estimated deficit of 7.13 billion pula for the current fiscal year.

Infrastructure Development Plans

Serame highlighted various planned projects across the water, transport, and energy sectors that will be financed by the proposed budget. It is projected that infrastructural development spending will experience a surge of over 33% in 2024/25.

The government is also planning to rally additional resources by issuing financial instruments like inflation-linked bonds and green bonds.

($1 = 13.7741 pula)

In relation to forex and trading, the adequate utilisation of these proposed funds could boost the country’s foreign exchange earnings, potentially impacting the value of pula against international currencies.

PIP Penguin
Logo