Botswana's economy probably shrank 11.5% in the financial year to the end of June 2009 due to a collapse in sales of diamonds, its key export, the Finance Ministry said yesterday, Reuters reported.



Acting Finance Minister Kenneth Matambo also forecast a further contraction of 12.8% in the 12 months ending in June 2010, and a return to growth of 7% in the next year for the southern African economy.



Matambo said sales of diamonds, which account for nearly 40% of the economy, had been increasing since April.



However, "signs are that there might be no dramatic recovery of the diamond markets during the remainder of the year and for most part of 2010 until the rough and polished diamonds in the pipeline have been reduced," he said in a written response to questions submitted by Reuters in Johannesburg.



He also said there was a high possibility of Botswana increasing its US dollar borrowing to fund the deficit in its budget caused by the shortfall in diamond mining revenues.



The government forecasts paint a much gloomier picture of the economy, which most analysts thought would contract by around 10% in the 2009 calendar year before recovering.