Botswana leader says economy weathers global storm

By Moabi Phia

GABARONE, Nov 3 (Reuters) - The global credit crunch has had little impact on Botswana's financial system, which has been cushioned by the diamond-rich African nation's foreign reserves, President Ian Khama said on Monday.

In his first state of the nation address since taking over from former President Festus Mogae earlier this year, Khama told parliament he was confident international financial volatility would not lead to major changes in the government's budget.

"Our own financial sector remains strong and has not yet been much affected by the credit crunch. Our foreign exchange reserves have also not been compromised and can cushion any immediate impact on our balance of payments," Khama said.

"Due to past savings government spending can be sustained in the face of any short-term revenue downturn."

With growth rates averaging at least 8 percent over the last two decades, Botswana has been Africa's best performing economy and a model of political stability on the continent.

Diamond production -- the southern African nation is the world's biggest producer -- has sustained growth, providing jobs and a crucial source of foreign earnings for the government.

Khama, however, warned that the country must diversify its economy because of an expected drastic decline in the diamond sector in the next decade. He listed tourism and agriculture as two of the most attractive areas for investment.

The new Botswanan leader faces a challenge following Mogae, who was praised by Western governments for making the country one of the most attractive investment destinations in Africa and for tackling the nation's AIDS epidemic.

Critics, however, said Mogae curtailed freedom of speech and violated the rights of San Bushmen when his government forced them off ancestral lands.

Analysts expect Khama, a former military man, to continue Mogae's policies.

Khama's Botswana Democratic Party (BDP), which has won every election since independence from Britain in 1966, is widely expected to retain power after the next general election, expected in late 2009. (Writing by Paul Simao; editing by Toby Chopra)