October 12, 2015 / 8:34 AM / 5 years ago

Botswana plans "bold" economic stimulus after diamond price drop

Diamond buyer Elliot Tannenbaum, from the Leo Schachter Diamond Group, holds uncut diamonds at a sightholders week at De Beers offices in central London August 29, 2013. REUTERS/Olivia Harris

GABORONE (Reuters) - Botswana will use some of its $8.5 billion in foreign exchange reserves to stimulate the economy after a drop in diamond prices hit growth in the world’s biggest producer, President Ian Khama said on Monday.

Botswana in September slashed its 2015 growth forecast from 4.9 percent to 2.6 percent and said the southern African country would post a budget deficit this year and next.

Diamonds account for around 75 percent of Botswana’s foreign exchange earnings and 30 percent of GDP, but gem demand has slowed since late 2014 as middlemen who buy rough stones struggle with a stronger dollar and liquidity problems.

The value of rough diamond exports from Botswana’s mines fell 15 percent in the first six months of the year.

“We have realised our economy is going to stagnate,” Khama said in a televised speech.

“The time has come for us to make bold decisions and implement these new projects that will boost our economy. But that doesn’t mean we are going to be reckless,” Khama added, without giving details on the size of the extra spending.

The economic stimulus, which Khama said would be ready in “a few weeks”, will target tourism development, agricultural production, construction and manufacturing.

Botswana currently has 88 billion pula ($8.5 billion) in foreign currency reserves, with around half held in a sovereign wealth fund.

$1 = 10.3093 pulas

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