Reuters

President of the Republic of Botswana, Seretse Khama Ian Khama.

Botswana's economy is likely to grow around 5 percent this year and next, down from 7.2 percent in 2010, due to a more moderate performance from the mining sector and a two-month public sector workers' strike, a Reuters poll showed on Thursday.

The poll of 10 analysts and economists forecast inflation would stay well above the targeted 3-6 percent band, averaging 8.1 percent this year, and 7 percent next year.

It sees the budget deficit in the world's biggest diamond producer narrowing to 1.1 percent of gross domestic product by 2012/13.

The economy contracted 4.7 percent in 2009 as world diamond prices plummeted during the global financial crisis, before bouncing back last year.

However, the strong recovery in the minerals sector has not been sustained and a drop in mining output led to an overall GDP contraction of 2.2 percent in the first quarter compared to the previous three months.

“Risks remain to the downside that growth could possibly be lower than anticipated as a result of the recent public sector strike,” said Janine Botha of NKC Independent Economists, a Cape Town consultancy which tracks frontier African countries.

More than 90,000 public servants went on strike for eight weeks, although public service unions suspended the action in early June after clashes with security forces.

Diamond mining is the mainstay of the landlocked southern African nation, accounting for about a third of overall output, and should underpin long-term growth despite the first quarter hiccup, economists said.

“Mining should continue to recover for the coming two years as new projects come on-stream,” said Keith Jefferies at Econsult Botswana. “Recent GDP data also suggest that the non-mining is performing quite well and that should continue.”

Real GDP excluding mining rose at an annual rate of 6.1 percent in the first quarter of this year compared with 7.6 in the first quarter of 2010.

Consumer inflation eased in June to 7.9 percent from 8.3 percent in May while the Bank of Botswana kept its benchmark interest rate steady at 9.5 percent after cutting it by 50 basis points last December.

“The upside risks to inflation remain substantial, most notably those posed by higher global food and oil prices,” Botha said.

The poll forecast the budget deficit for the 2011/12 financial year would narrow to 6.3 percent of GDP, in line with the government's forecast, from a revised 10.1 percent deficit in the previous 12 months.

By the 2012/13 financial year, economists saw the budget deficit narrowing further to just 1.1 percent of GDP. The government says it will already be in balance by then. - Reuters