Interview with AfDB’s Governance, Economic and Financial Reforms Director, Gabriel Negatu, following the institution’s approval of a loan to finance the Botswana Economic Diversification Support Loan Programme
“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
Question: The African Development Bank (AfDB) Group has approved a major loan of US$ 1.5 billion to finance Botswana’s Economic Diversification Programme. Could you explain the reasons for this approval to our audience?
Answer: The purpose of the programme approved today is to create competitive conditions for accelerated private sector growth, economic diversification and poverty reduction. This operation will allow the Bank to respond swiftly to a request from the Republic of Botswana, a top performer and well governed AfDB Regional Member Country (RMC). Botswana’s good economic performance has depended on its prudent utilization of its mineral (especially diamond) wealth, which has now been negatively affected by the fall in demand and declining prices. Consequently, a country that has been running budget surpluses for over a decade now suddenly finds itself in a budget deficit position of around 10.9%) in the 2009-2010 financial year.
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.
Apart from being a response to the global economic crisis, borrowing from IFIs is now a deliberate government policy to enable Botswana benefit from international best practices associated with such loans. The loan will be disbursed in two tranches - US$1 million and US$0.5 million, respectively - during 2009-2010 financial year.
Question: What will be AfDB’s added value, particularly to Botswana’s private sector growth and poverty reduction?
Answer: After 12 years of non-lending activities in Botswana, the Bank has gradually re-established its presence in country. Meanwhile, the Bank has undertaken several analytical and diagnostic works, including the joint AfDB-World Bank Report on the Observance of Standards and Codes (ROSC), the Economic Diversification Study, the Country Governance Profile, the Country Economic Review, the Agriculture Sector Review and support to improve Extractive Sector Governance. This has given the Bank a unique knowledge advantage regarding progress made and challenges facing the country. These confidence-building measures have strengthened the partnership with the government of Botswana and conferred on the Bank a preferred creditor status. In addition, the Bank has granted Botswana seven Middle Income Countries (MIC) grants for project preparation, policy studies and capacity building, a partnership-building measure that is highly appreciated by the government.
The AfDB-supported programme will assist Botswana in its effort to diversify its economy away from diamond as well as support investment programmes. This will better equip the country to respond more positively to similar global crisis in the future. The programme is consistent with the main thrust of Botswana’s Tenth National Development Plan (NDP-10) [April 2009-March 2016], the reforms articulated in the 2009-2010 Budget Speech and the Bank’s Results Based Country Strategy Paper (RBCSP) for Botswana (2009-2013).
Question: This loan is part of AfDB’s broader strategy to become a partner of choice for its Regional Member Countries (RMCs) in terms of strengthening financial governance. What are the Bank’s major economic and financial governance strategies to support its RMCs?
Answer: This loan is part of AfDB’s broader strategy to position itself as the region’s key development Bank and a preferred partner of African countries in their quest to strengthen economic and financial governance. In this regard, the Bank views good economic and financial governance as the foundations upon which to build effective, capable, and accountable states, able to deliver basic services to the poor.
The Bank Group has reaffirmed the strategic priority it gives to governance, as one of its core strategic pillars. In 2008, the Bank approved the Governance Strategic Directions and Action Plan for 2008-2012 (GAP), which put emphasis on equipping the Bank to achieve development results. Building on the consensus of the ADF Deputies and the Report of the High Level Panel (HLP), the GAP focuses on key drivers of growth and development, by improving economic governance to facilitate private sector development and strengthen the investment climate; notably but not only in middle income countries such as Botswana, and; enhancing public financial management to ensure more effective use of domestic and aid resources.
The economic impact of the crisis has led to a notable increase in the expectations of African countries of the AfDB. The Bank has recorded an increase in the number of demands for additional support, notably from middle-income countries, but also low-income countries and fragile states, including Mauritius, Botswana, Cape Verde, DRC, Liberia, and Guinea Bissau, to mention just a few. Increased requests have also been received in the Bank’s non-lending activities such as analytic and advisory works. In 2008, the Bank financed 17 new governance-related operations amounting to over UA 680.0 million, which represented 21 percent of total Bank Group’s loan and grant approvals for the year. As of June 2009, the Bank Group will have approved more than 15 lending and non-lending operations focusing on economic and financial governance amounting to UA 1.5 billion; including several unanticipated or additional budget support. This represents almost a tripling of the approvals in 2008.
A key message from this support to Botswana is that the AfDB stands ready to assist its regional member countries in these times of global economic turbulence by being responsive and delivering its services and products in a timely fashion, and in a manner that addresses the differentiated needs and challenges facing member countries.