The IMF and Botswana authorities have discussed recent developments and prospects and focused on policies to increase economic growth and job creation while preserving monetary and financial stability.
The team from the International Monetary Fund (IMF) visited Gaborone during May 22-June 6, 2018 to hold discussions for the 2018 Article IV Consultation with Botswana.
- Economic growth is expected to rebound in 2018 supported by higher diamond sales, a stable macroeconomic environment, and higher government spending.
- IMF staff welcomes the authorities’ recent announcements of their intention to liberalize visa and work permits’ policies, reduce bureaucratic requirements, and privatize inefficient enterprises.
- In this regard, medium-term prospects are favorable assuming a decisive and prompt implementation of key fiscal policy measures and market-friendly reforms that enable private sector development, lowers unemployment, reduces income inequality, and diversifies exports into selected sectors.
The mission team, led by Mr. Gelbard, noted that Botswana’s Real GDP growth decelerated to 2.4 percent in 2017 owing to declines in copper and nickel production and lower activity in construction and trade, while the fiscal and external accounts were nearly balanced, inflation was about 3 percent, the exchange rate was stable, the financial sector remained sound and well capitalized, and public debt continued to be low at about 19 percent of GDP.
“In 2018, economic growth is expected to rebound supported by higher diamond sales, a stable macroeconomic environment, and higher government spending. While the government balance is expected to deteriorate owing to lower revenues from the Southern Africa Customs Union and higher fiscal outlays, the deficit should be manageable given high levels of savings and foreign exchange reserves.
“In the medium-term, and in line with their track record of prudent policies, the authorities aim at achieving a fiscal surplus. To this end, it will be necessary to undertake revenue and expenditure reforms alongside policies to reduce income inequality. On the revenue side, it would be important to remove many tax exemptions, increase property taxation, and consider making the personal income tax more progressive. On the expenditure side, it will be important to contain the growth of recurrent spending, improve the efficiency of social programs, and protect public investment while prioritizing projects with the highest payoffs. In addition, the financial sector can be further developed to intermediate additional savings and lend to productive sectors by strengthening creditors’ rights, improving information on borrowers’ creditworthiness, increasing the issuance of government bonds to develop a reliable yield curve, and promoting mobile payments.
“Notwithstanding the envisaged short-term economic recovery, the diamond and government-led development model has been showing limitations with lower average GDP growth and slow job creation in recent years. The authorities recognize this and, as noted in the 11th National Development Plan, an approach focused on private sector development and enabling growth in selected sectors is needed to lower unemployment and diversify exports.
“The diversification and job creation efforts requires focus on prompt and bold market friendly reforms that can reduce the costs of doing business, improve skills in the labor force, make the public sector more efficient, privatize key enterprises, and enable competition and entry of firms in sectors with latent comparative advantage. In this regard, the staff team welcomes the authorities’ recent announcements of their intention to liberalize visa and work permits’ policies, reduce bureaucratic requirements, and privatize inefficient enterprises. Ultimately, however, the success of these reforms will depend on the speed and determination with which they are implemented (including an accelerated passage of supporting legislation), together with accountability among government entities and enhanced monitoring and evaluation of results.
“Delivering on the above policies and reforms will be essential to enable private sector-led growth and employment creation in Botswana.”
“The staff team met with the Minister of Finance and Economic Development, Honorable Ontefetse Kenneth Matambo, Governor of the Bank of Botswana, Mr Moses D Pelaelo, the Permanent Secretary of the Ministry of Finance and Economic Development, Mr Solomon Sekwakwa, other senior government officials, and representatives of the private sector, academia, and development partners. The team would like to thank the authorities and representatives of the private sector and civil society for their cooperation and productive discussions.”