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Last Updated: Tuesday, 31 May, 2005, 09:28 GMT 10:28 UK
Botswana devalues the pula
President of Botswana Festus Mogae
President Festus Mogae is keen to see the economy better diversify
Botswana has surprised the currency markets by devaluing the pula by 12%.

Its central bank said the move against a number of other currencies was in line with its aim of seeing a "stable and competitive real exchange rate".

The change is intended to deliver a boost to both Botswana's exporters and domestic producers, in the face of flagging growth and high unemployment.

It surpasses a 7.5% devaluation back in February 2004, and comes after interest rates dropped to 14% in April.

"Tourism, textiles, diamonds, copper-nickel and beef are among the many sectors that will benefit from the new system," the government said.

"In brief ... (it) is an important step on our path to rapid, diversified and sustained job creation."

'Economic boost'

Botswana is also to introduce a new exchange system for the pula, by which it will be able to make continual adjustments to the rate rather than the step-changes on which it currently relies.

"It looks as though the rationale behind this is the realisation that the economy is slowing and more needs to be done about it," said Standard Chartered's Africa economist Razia Khan.

"But it will have a huge impact on inflation and after last year's devaluation it will hit confidence in the exchange rate, which may be difficult to restore in the future."

Botswana is widely regarded as an economic success story.

It is however, heavily dependent on its diamond exporters, and the government wishes to better diversify the economy to help bring down an unemployment rate of more than 20%.

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