Botswana’s economic performance since the middle 1990s has been impressive, allowing the country to move quickly from low to upper-middle income status.
According to the International Monetary Fund’s African Department in its 2017 IMF Executive Board conclusion of its Article IV consultation with Botswana, the Botswana authorities have pursued prudent economic policies and have been working to upgrade the electricity and water infrastructure.
Immediate outlook for Botswana
Following a brief economic downturn in 2015, the annual GDP growth is expected to gradually increase to near 5 percent by 2018, supported by a recovery in the diamond market and moderate fiscal stimulus.
Inflation, while picking up slightly, is projected to remain within the Bank of Botswana’s objective range of 3 to 6 percent. Risks are balanced, linked to economic activity in the U.S. and major emerging markets and to progress with domestic structural reforms.
The IMF says the fiscal stance envisages small deficits over the next two years and a gradual rebalancing of spending toward public investment, consistent with a remaining output gap and the need to upgrade the public infrastructure. In the medium term, revenue mobilisation and expenditure restraint are projected to lead to fiscal surpluses.
Monetary policy is likely to remain neutral but could be tightened if needed to dampen inflation expectations. The crawling peg exchange rate regime with preset basket weights continues to serve the country well and no changes are deemed necessary at this stage.
Key reforms necessary
The IMF agrees with the authorities in Botswana that reforms on several recommendations need to be implemented, notably with respect to public financial management and the electricity and water sectors. Despite a rebound in diamond revenues, reforms to raise domestic revenues will be important to fund future expenditure and strengthen fiscal sustainability, while proceeding with plans to enhance financial supervision will reinforce the soundness of the financial system. Over time, the goal of inclusive growth would benefit from a set of concrete, time-bound, monitor-able reforms aimed at improving public financial management, enhancing human capital, and lowering barriers to the expansion of the private and the financial sectors through the removal of distortions, wise investments, minimal government intervention, and focus on sectors with clearly defined comparative advantage.
Overall, notwithstanding progress, the IMF says authorities need to take note that reforms in the areas of tax administration, state-owned enterprises, and the labor market have been constrained by limited capacity and, at times, insufficient coordination or political support. Furthermore, economic diversification has been limited and unemployment has been persistently high. The authorities consider that resolving these challenges will require a fundamental shift from a diamond and government-driven growth model to one based on building human capital and fostering a competitive private sector.
Read the IMF’s full Botswana report here.