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IMF Executive Board Concludes 2019 Article IV Consultation with Botswana

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with Botswana







March 27, 2020















WASHINGTON, DC
– The Executive
Board of the International Monetary Fund (IMF) concluded the Article IV
consultation

[1]

with Botswana.



Please note: The Staff Report was prepared by an IMF staff team for
the Executive Board’s consideration on March 9. The staff report
reflects discussions with the Botswana authorities in November 2019
and is based on the information available as of February 21, 2020.
It focuses on Botswana near- and medium-term challenges and policy
priorities and was prepared before COVID-19 became a global
pandemic and resulted in unprecedented strains in global trade,
commodity, and financial markets. It, therefore, does not reflect
the implications of these developments and related policy
priorities. The outbreak has greatly amplified uncertainty and
downside risks around the outlook. Staff is closely monitoring the
situation and will continue to work on assessing its impact and the
related policy response in Botswana and globally. We direct you to
the


attached documents


that includes preliminary staff recommendations with regard to the
COVID-19 global outbreak.

Persistently lower mineral revenues and SACU proceeds and delays in the
needed fiscal adjustment, including the large increase in the wage bill,
have contributed to a moderately overvalued exchange rate, and eroded
buffers and savings for future generations. These challenges, together with
a severe drought, have contributed to slower real GDP growth and a
deterioration in the fiscal and external balances in 2019.

Growth is expected to pick up in the near-term mostly driven by the mining
sector. Yet, over the medium term, absent bold fiscal and structural
reforms, growth will remain around 4 percent, a level that is insufficient
to achieve the authorities’ objectives of reducing unemployment and
transitioning to high-income status. Inflation is expected to remain within
the Bank of Botswana’s target range.

The outlook is subject to significant downside risks, including potential
disruptions from COVID-19, most of which will affect Botswana through
diamond and SACU revenue. Over the medium and longer term, Botswana could
also be affected by climate change.

In the FY2020 budget, the first after the October 2019 general election,
the authorities envisage resuming fiscal consolidation, mostly through
reprioritization of capital spending, cuts in non-priority recurrent
expenditures, and increases in fees, while the public wage bill will
continue to increase. With a constrained fiscal position, the budget also
acknowledged the need to transform the economy toward a private sector,
export-led and knowledge-based growth model, and increase the efficiency of
public spending while aligning the human and physical capital on the
transformation agenda.

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Executive Board Assessment

[2]

Executive Directors noted that economic growth slowed last year following a
contraction in diamond activity and a severe drought. Expansionary fiscal
policy in the face of persistent lower diamond and trade revenues has
widened the fiscal deficit, eroding buffers and weakening the external
position. With the outlook subject to downside risks, Directors highlighted
the need to rebuild buffers to guard against future shocks, including from
a global growth slowdown, coronavirus-related spillovers, and climate
change and natural disasters. Reforms to facilitate structural
transformation and diversify the economy will be crucial to promote
stronger, sustainable, and inclusive growth.

Directors welcomed the planned gradual fiscal consolidation, stressing the
need to start without delay. They underscored the importance of carefully
calibrating the adjustment to minimize the impact on competitiveness and
growth and protect the most vulnerable, as well as using fiscal space
should downside risks materialize. They encouraged greater efforts in
mobilizing revenue, including by broadening the tax base, reducing
exemptions, and advancing tax reform, while containing the wage bill to
protect efficient capital and social spending. Directors commended the
authorities’ focus on increasing spending efficiency through public
investment management and parastatal reforms. They highlighted the
importance of strengthening the fiscal framework aimed at ensuring
intergenerational equity and smoothing cyclical fluctuations. They also
recommended defining a medium-term anchor and modifying the existing fiscal
rule, and took positive note of the authorities’ interest in Fund technical
assistance in this area.

Directors agreed that the current accommodative monetary policy stance is
appropriate and welcomed the authorities’ readiness to loosen the stance
further if needed. They encouraged the authorities to use the flexibility
within the current exchange rate framework to cushion against external
shocks and help the economy adjust over time to the persistent decline in
mineral receipts and revenues from the Southern African Customs Union.
Directors urged a further strengthening of monetary transmission by
deepening domestic financial markets. They emphasized the need to continue
to closely monitor risks in household balance sheets and employ
macroprudential tools as necessary.

Directors encouraged acceleration of the implementation of supply-side
reforms to promote private sector activity and economic diversification,
building on recent progress in improving the business environment. To
foster competitiveness and boost jobs, they recommended reducing the
government footprint in the economy, further enhancing human capital, and
promoting greater integration into regional and global value chains.
Continuing to enhance resilience to climate change will be important.

Directors took positive note of the country’s track record of good
governance and encouraged continued efforts to strengthen fiscal
transparency and address the remaining deficiencies identified in the 2017
AML/CFT evaluation.

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Table 1. Botswana: Selected Economic and Social Indicators, 2014–2025

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Prel. Projections

(Annual percent change, unless otherwise indicated)1

National income and prices

Real GDP

4.1

-1.7

4.3

2.9

4.5

3.4

4.4

5.6

3.8

3.9

3.9

3.9

Mineral2

0.5

-19.6

-3.5

-11.1

7.4

-1.1

7.1

26.0

5.1

4.0

2.7

0.4

Nonmineral

4.9

1.7

5.5

4.8

4.1

3.9

4.1

3.3

3.6

3.9

4.1

4.4

GDP per capita (US dollars)

7,498

6,539

6,958

7,584

7,994

Consumer prices (average)

4.4

3.1

2.8

3.3

3.2

2.8

3.5

3.5

4.0

4.0

4.0

4.0

Diamond production (millions of carats)

24.7

20.8

20.9

22.9

24.4

24.0

25.8

25.3

26.0

26.8

27.5

27.5

Money and banking

Monetary Base

-8.5

18.6

3.7

-13.7

17.5

9.4

7.7

7.0

7.8

8.0

8.3

8.5

Broad money (M2)

4.6

19.9

5.4

2.7

8.3

9.4

7.7

7.0

7.8

8.0

8.3

8.5

Credit to the private sector

13.7

9.0

9.0

5.3

6.6

5.6

7.9

7.3

8.1

8.3

8.3

9.1

(Percent of GDP, unless otherwise indicated)

Investment and savings

Gross investment (including change in inventories)

28.2

32.6

28.6

28.2

29.4

34.5

30.8

32.3

31.9

30.8

30.9

31.0

Public

8.2

8.8

8.5

8.2

8.0

6.6

5.6

5.0

4.8

4.6

4.4

4.2

Private

20.0

23.8

20.0

20.0

21.4

27.9

25.2

27.2

27.1

26.2

26.5

26.7

Gross savings

42.6

39.5

34.6

36.4

31.5

30.2

28.7

31.5

31.8

31.2

31.7

31.9

Public

19.8

16.1

16.2

15.2

12.1

9.2

10.2

10.8

11.1

10.7

11.1

11.5

Private

22.8

23.4

18.4

21.2

19.5

21.0

18.6

20.7

20.7

20.5

20.6

20.5

Central government finances3

Total revenue and grants

38.3

31.2

33.2

30.9

27.7

25.5

28.2

27.0

26.8

25.9

26.3

26.1

Total expenditure and net lending

34.7

35.8

32.5

32.0

32.3

31.3

31.3

29.2

28.1

27.5

26.8

26.0

Overall balance (deficit –)

3.7

-4.6

0.6

-1.1

-4.6

-5.8

-3.1

-2.3

-1.3

-1.6

-0.5

0.1

Non-mineral primary balance4

-16.1

-18.1

-17.6

-14.3

-17.1

-15.4

-13.5

-12.8

-12.1

-11.2

-10.3

-9.3

Total central government debt

22.6

23.2

21.3

18.1

18.9

18.7

16.7

16.7

16.0

15.5

14.5

13.3

External sector

Exports of goods and services, f.o.b. (% change)

8.2

-24.1

14.0

-15.7

9.8

-20.0

25.0

6.0

4.5

7.6

4.5

3.1

o/w
diamonds

10.4

-28.4

24.6

-17.6

6.8

-24.9

31.3

-0.6

2.5

6.6

4.2

2.0

Imports of goods and services, f.o.b. (% change)

-2.1

-10.0

-14.6

-10.0

16.6

-3.8

14.4

1.6

1.1

5.6

3.6

3.3

Current account balance

10.7

2.2

7.8

6.1

2.1

-4.3

-2.1

-0.8

-0.1

0.4

0.8

1.0

Overall Balance

3.7

-5.4

-2.3

1.8

2.0

-7.7

-1.9

-0.9

0.0

0.9

1.3

1.4

Nominal effective exchange rate (2010=100)

94.8

94.9

95.1

95.4

95.5

Real effective exchange rate (2010=100)

104.3

105.2

104.8

105.0

105.1

Terms of trade (2005=100)

165.7

197.6

176.1

160.1

147.2

134.7

132.5

132.5

132.4

132.4

132.3

132.3

External public debt5

17.2

18.4

14.3

11.6

11.9

11.0

10.0

8.9

8.1

7.4

6.7

6.0

o/w public and publicly guaranteed

4.8

5.3

4.7

4.4

4.2

4.0

3.7

3.3

3.1

2.8

2.6

2.4

(Millions of U.S. dollars, unless otherwise indicated)

Gross official reserves (end of period)

8,323

7,546

7,189

7,502

6,657

6,557

6,182

5,986

5,994

6,365

6,673

7,032

Months of imports of goods and services6

12.3

13.1

13.9

12.4

11.4

9.9

9.4

9.0

8.5

8.5

8.6

8.8

Months of non-diamond imports6

17.8

17.5

17.8

16.4

14.0

12.5

11.9

11.4

10.8

10.8

10.9

11.0

Percent of GDP

54.3

58.0

44.9

41.1

37.5

35.3

32.2

29.0

27.7

28.3

28.4

28.3

Sources: Botswana authorities and IMF staff estimates and
projections.

1 Calendar year, unless otherwise indicated.

2 Projections are based on diamond production due to lack
of information on the breakdown of mining value added by
mineral.

3 Year beginning April 1.

4 The non-mineral primary balance is computed as the
difference between non-mineral revenue and expenditure
(excluding interest receipts and interest payments),
divided by non-mineral GDP.

5 Includes central government-guaranteed debt.

6 Based on imports of goods and services for the following
year.

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 [1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.IMF.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Meera Louis

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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