Botswana, the world’s biggest diamond producer, will probably see its economy rebound this year as the diamond industry recovers from the effects of the global economic crisis, Finance Minister Kenneth Matambo said, Bloomberg reported.

Growth will expand about 5% in the fiscal year through March 2011 after stagnating in the current year, Matambo said in his annual budget speech yesterday in the capital, Gaborone. Gem production is expected to take another two years to recover to pre-recession levels, he told lawmakers.

“We are projecting a gradual recovery of the world diamond market,” Matambo said. “The dollar value of Debswana’s diamond sales is gradually expected to return to levels achieved in 2007-08 by 2012-13.”

Debswana Diamond Co., the joint venture between De Beers and Botswana’s government, shut its mines for about two months last year as demand for the gems slumped amid the global economic crisis. The mines account for 70% of Botswana’s exports and a fifth of global diamond output, the report said.

Diamond revenue fell to 6.9 billion pula in 2009-10 from 10.8 billion pula a year earlier, Matambo said yesterday.

In order to increase overall revenue in the year ahead, Matambo proposed a two percentage point increase in the value- added tax rate to 12 percent. Total revenue for the year is forecast at 27.1 billion pula ($3.91 billion), he said, without providing a figure for the previous year.

Botswana’s budget deficit is expected to narrow to 12.2 billion pula, or 12.2% of gross domestic product, in the fiscal year through March 2011, from 15.1% in the same period a year earlier, as spending is reduced by 5% to 39.2 billion pula.

“The deficit will be financed by a combination of drawing down on government’s cash balances which were accumulated in surplus years, and by borrowing, largely on the domestic capital market,” Matambo said.

Among the measures aimed at reducing spending, Matambo announced that civil servants would not receive a wage increase in the 2010-11 fiscal year.

“Should the economic situation improve the adjustment of public sector salaries will be considered,” he said.

Botswana sought credit from the African Development Bank for the first time in 17 years last year as diamond-export earnings fell on the back of the recession in the US, the world’s biggest consumer of the gems, said the report.