Botswana's stable democratic system, pursuit of sound macroeconomic policies, and harnessing of its substantial mineral resources have helped transform this sub-Saharan African country from one of the poorest in the 1960s and 1970s to a middle-income country in the 1990s. Broad-based real GDP growth averaged 16 percent in the 1970s and 11 percent in the 1980s, underpinned by abundant diamond resources (diamonds account for about 30 percent of GDP, 70 percent of exports, and more than 45 percent of government revenue). These resources were managed so as to avoid the "Dutch disease" syndrome that has afflicted many mineral-rich countries.
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Botswana's exceptional economic performance has been buttressed by sustained fiscal surpluses since fiscal 1983/84 (fiscal year beginning April 1).
The strength of its external position, as reflected in sizable current account surpluses, has contributed to the accumulation of substantial official reserves-estimated at more than $5 billion at the end of 1996, equivalent to 29 months of imports. Prudent financial policies have held inflation in check, while the maintenance of a competitive and stable exchange rate has stimulated nontraditional exports.
During 1992-94, Botswana had to contend with a serious economic recession brought about by the weakening international diamond market, the impact in 1991 of the worst droughts of the century, and the collapse of the construction sector in the wake of financial irregularities in 1992. The authorities responded to these challenges by tailoring their development strategy to emphasize economic diversification and liberalization, taking advantage of the potential for regional economic cooperation.
Through the early 1990s, Botswana pursued a development strategy that relied heavily on public investment in the diamond sector and an expansion of the public sector. Three diamond mines were opened between 1971 and 1982, boosting diamond exports to 15 million carats a year by 1992. As a result, GDP originating from the diamond sector grew on average by about 10 percent annually, and public expenditures reached 41 percent of GDP in 1992. Overall growth was strong and formal sector employment expanded at an annual average of nearly 8 percent. A well-developed infrastructure was put in place, and Botswana's social indicators improved substantially from the 1970s through the early 1990s. School enrollment, access to health...