IMF Staff Completes 2019 Article IV Mission to Botswana
November 26, 2019
End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.
- Growth is expected to slow to about 3½ percent in 2019, due to weaknesses in the diamond market, a severe drought, and slower growth in neighboring countries. In 2020, it is expected to rise to 4.2 percent as the diamond market normalizes and copper production comes into stream.
- Fiscal consolidation should start in FY2020, supported by both expenditure and revenue measures beyond those considered by the authorities. The consolidation needs to be carefully calibrated to minimize the impact on growth, competitiveness, and the most vulnerable.
- Achieving Botswana’s objectives of moving to a knowledge-based economy and to high-income status by 2036 will require changing the growth model from a mining and government-led model to private sector and export-driven.
An International Monetary Fund (IMF) team, led by Mr. Papa N’Diaye, visited
Gaborone during November 13-27 to hold discussions for the 2019 Article IV
Consultation with Botswana. The discussions focused on macroeconomic
policies to increase the resilience of the economy in the face of
persistently low mineral revenue and transfers from the Southern African
Customs Union (SACU), as well as the structural reforms needed to achieve
the authorities’ objective to transition to a knowledge-based economy and
high-income status by 2036. At the end of the visit, Mr. N’Diaye issued the
“After a relatively good performance in 2018, the economy is facing
headwinds in 2019 related to weaknesses in the diamond market, a severe
drought, and slower growth in neighboring countries. Growth is expected to
slow to about 3½ percent in 2019, while inflation will remain low. The
current account is projected to move to negative territory, contributing to
a decline in reserves. The fiscal deficit is expected to reach 5¾ percent
of GDP due to lower-than-expected revenue, higher-than-expected increase in
public wages and other recurrent spending. Despite these challenges, the
banking sector remains well capitalized and liquidity has improved.
“Under staff’s baseline scenario, growth is expected to recover to 4.2
percent in 2020, as the diamond market normalizes and copper production
comes into stream, and hover around 4 percent thereafter—a level too low to
achieve Botswana’s development objectives and create enough jobs to absorb
the new entrants into the labor market. Inflation will accelerate amid
accommodative monetary policy but remain in the bottom half of the Bank of
Botswana (BoB) target band. Fiscal consolidation will gradually reduce the
deficit and would contribute to a gradual rebuilding of buffers over the
“The outlook is subject to significant downside risks, including a global
rise in protectionism, a faster-than-anticipated slowdown in China and in
the euro area, and continued slow growth in South Africa. Over the medium
term, the country remains vulnerable to volatile mineral revenue and SACU
transfers and to climate shocks. Upside risks could stem from
higher-than-expected mining production (e.g. coal).
“The mission supports the authorities’ objective to return to a fiscal
surplus over the medium term in line with their track record of fiscal
discipline. While Botswana still has some fiscal space that allows a
gradual adjustment, fiscal consolidation should start in FY2020, supported
by both revenue and expenditure measures. In advancing consolidation, the
composition of the adjustment needs to be carefully calibrated to minimize
the impact on competitiveness, growth, and the most vulnerable.
“The accommodative monetary policy stance is appropriate and consistent
with the objective of maintaining a stable real exchange rate against the
currencies in the basket.
“Achieving Botswana’s objectives of moving to a knowledge-based economy and
to high-income status by 2036 will require changing the growth model from a
mining and government-led model to a private sector and export-driven. This
entails revamping the macroeconomic policy frameworks to increase the
resilience of the economy and accelerating the implementation of
“Recommended fiscal reforms include i) modifying the fiscal rule to
prevent further erosions in buffers and achieve Botswana’s
intergenerational equity objectives; ii) greater revenue mobilization
through broadening the tax base and advancing tax reform; iii) public
financial management reforms to enhancing the efficiency of spending;
iv) reforming parastatals and other extra-budgetary entities, including
by enforcing compliance to best governance practices and strengthening
their monitoring and accountability, and v) revamping the debt
“Regarding monetary and exchange rate policy, the BoB should use the
flexibility afforded by its current exchange rate regime to help the
economy adjust to the persistent decline in mineral and trade resources and
structural transformation. Recent reforms to strengthen the monetary
transmission mechanism and deepen the domestic financial market should
continue, including by further developing the secondary market for
government securities, leveraging Fintech, facilitating the attachment of
collateral, and improving credit information.
“Supply-side policies should focus on further improving the business
environment, redesigning industrial policies with a view to fostering
competition and competitiveness, and reducing the government footprint
in the economy. Furthermore, transitioning to a knowledge-based economy
and a high-income status will require prioritizing investment in human
capital, upgrading digital skills and deepening Information and
Communications Technology penetration, as well as promoting integration
in regional and global value chains. Strategic deficiencies in the
Anti-Money Laundering/Combating the Financing of Terrorism framework
should be addressed.
IMF Communications Department
PRESS OFFICER: Meera Louis
Phone: +1 202 623-7100Email: MEDIA@IMF.org