Press Release No. 11/206

Press Release No. 11/206
May 31, 2011

An International Monetary Fund (IMF) mission led by Mr. Lamin Leigh visited Gaborone during May 18-31 to conduct the 2011 Article IV Consultation discussions with Botswana. The mission's work focused on reviewing recent economic developments and prospects and policies to ensure continued macroeconomic stability and growth. The mission met with Minister of Finance and Development Planning, the Honorable O. Kenneth Matambo; Bank of Botswana Governor, Ms. Linah K. Mohohlo, Permanent Secretary of Ministry of Finance and Development Planning, Mr. Solomon M. Sekwakwa; senior government officials, development partners, and representatives from the private sector and civil society.

At the end of the mission, Mr. Leigh, the IMF Mission Chief for Botswana, issued the following statement in Gaborone today, outlining the mission's preliminary conclusions:

“Thanks in large part to good policies supported by a rebound in diamond exports, the Botswana economy is now back onto a strong growth trajectory. At the same time, however, inflation has edged up in recent months triggered by high international commodity prices which are beyond the authorities’ control. While inflation is currently higher than the Bank of Botswana’s medium-term objective band of 3-6 percent, at this stage, there appears to be no firm evidence of generalized price pressures in the domestic economy. Thus, the mission supports the Bank of Botswana’s neutral policy stance with respect to interest rates as outlined in the bank’s 2011 Monetary Policy Statement. The fiscal policy stance in the FY2011/12 budget should help to contain domestic demand and rebuild the Pula Fund.

“Botswana faces the daunting challenge of reducing the relative size of the government in the economy. The government’s overall expenditure envelope (as a share of GDP) is very high by international standards, thus warranting a thorough assessment of pockets of unproductive spending and ways to increase efficiencies. Moreover, fiscal consolidation is critical given the likely plateau of diamond revenues in the next few years and the need to rebuild the Pula Fund for the benefit of future generations. The mission supports a number of ongoing government initiatives to improve public financial management, including better prioritization of overall government spending, emphasis on maintenance and refurbishment of existing infrastructure projects rather than initiating new projects, and efforts to contain the growth of budget appropriations of current transfers, goods and services, and the wage bill. On the latter, the mission’s view is that wage policy should be prudent and any nominal adjustment made in FY2011/12 would need to be financed by either over performance in revenues or expenditure savings generated elsewhere in the budget so that the budget deficit remains unchanged. Going forward, the government would need to reduce the size of the wage bill as a share of GDP as this remains rather high relative to comparator countries and is not sustainable. Reducing the wage bill would also require efforts to make the public service leaner and more efficient. The mission welcomes efforts by the Botswana Unified Revenue Service to expand the tax base including through the establishment of a Large Taxpayer Unit (LTU) in line with international best practice.

“Despite its upper middle-income status, Botswana faces significant development challenges. In line with the tenth national development plan (NDP10), the mission reiterated that a broad-based and private sector led economy is essential if Botswana is to unleash its growth potential and sustain it. Fostering economic diversification beyond the diamonds sector will demand steadfast efforts to target economic sectors with high income and employment multiplier effects on the economy, albeit avoiding unwarranted tax exemptions that would lead to a narrow tax base. Tackling the high level of structural unemployment is also needed to improve the quality of economic growth. Thus, the mission welcomes the progress being made on the government’s tertiary education reform program and the Human Resource Development Council which should help to address the skills mismatch in the labor market.

“The mission would like to thank the authorities for their warm hospitality, the timely provision of required information, the productive and open discussions, and the excellent cooperation during the mission.”