Matambo advises Mongolian MPs on mineral revenue use

The Minister of Finance and Development Planning, Kenneth Matambo on August 9, 2010 met with a delegation of Members of Parliament from Mongolia who are in Botswana to learn how the country has successfully managed revenues from minerals.

The delegation consists of MPs who are members of the Budget Standing Committee of Parliament and their interest is in minerals as well as fiscal policy. Botswana has been selected together with Norway and Chile from which to benchmark.

When briefing the delegation of Mongolian MPs, Matambo told them that at independence in 1966, Botswana was one of the 25 poorest countries in the world and depended on grants from the United Kingdom to finance the government budget.

When diamonds were discovered in the 1970s it created an opportunity to start economic development with revenues accruing being channelled to infrastructural development in priority sectors, being water, health care, primary education and roads network. Agriculture was also given a priority as most Batswana were dependent on subsistence farming. This strategy led to rapid economic development in the 1970s to 1990s.

Botswana experienced surpluses as diamond revenues increased through time and the strategy adopted was to save part of these surpluses for the future. Consequently, Botswana accumulated reserves, which are now worth - as at end of April 2010, P56.1 billion, which is equivalent to 19 months of import cover.

Botswana has consistently reinvested most of its mineral revenues in accordance with the criteria explicitly aimed at sustainability and the enhancement of the stock of physical and human capital. Botswana has a planning process which has, contributed significantly to the achievements and success of this country. Matambo advised Mongolian MPs that they should not be excited by the mineral revenues that they receive and think that they are getting rich and should emulate Botswana by not spending the mineral revenues on consumption but investing them.

The recent economic and financial crisis of 2008/09 hit Botswana very hard which adversely affected the economy and led to huge budgetary deficits.

The deficit was partly financed from accumulated reserves.

Lessons learnt from the crisis are that it is not advisable to be excessively dependent on natural resources because they get finished at some stage and that economic crisis can always come back.

Therefore, there is need to diversify the economy and reduce over-dependence on minerals.