## cr18268 - 2018. The staff team comprised Mr. Gelbard (head), Ms. Ganum, and

## Source details

**Canonical URL:** [cr18268 - 2018. The staff team comprised Mr. Gelbard (head), Ms. Ganum, and](https://www.imf.org/-/media/files/publications/cr/2018/cr18268.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2018/cr18268.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2018/cr18268.pdf.json)

---

### Context
- Botswana is a small upper-middle income country with strong performance on income per capita, governance, rule of law, and macroeconomic management.
- External shock since 2014:
  - Volatile global demand for diamonds due to slower growth in China and demonetization in India.
  - Downward trend in real prices of rough diamonds, lower production, and accumulation of inventories.
  - Exports of other minerals collapsed since 2016 owing to low international prices and the closure of the largest copper-nickel mine.
- Authorities’ policy response:
  - Countercyclical fiscal policy after the 2015 slowdown.
  - Bank of Botswana loosened monetary policy to support non-mining activity.
- Structural limits and development model issues:
  - Diamond cum public sector-led model showing limitations; non-mining potential growth declined due to lower capital accumulation and sluggish productivity gains.
  - Reliance on government expansion and nontradable goods in a small domestic market, slow removal of distortions, and an unfocused development strategy limited employment, equality, and export diversification gains.
- Reform progress and gaps:
  - Prudent macroeconomic management maintained: countercyclical policies, low debt and low inflation.
  - Structural progress: financial sector and public financial management reforms; electricity shortages resolved.
  - Lagging areas: tax policy amendments, public sector efficiency, business environment, education outcomes, labor skills—attributed to insufficient coordination, accountability, capacity, and political constraints.
- Recent legislative and policy announcements:
  - Statutes to facilitate electronic business transactions, improve securities market regulation, settle trade disputes, register tribal land, establish an energy regulatory authority, align customs with the Revised Kyoto Convention, and improve excise tax collection.
  - Political transition: Vice-President Masisi became President in March (ahead of general elections by October 2019); plans announced to liberalize the meat sector, rationalize parastatals, proceed with privatizations, and relax visa and work permit restrictions (timing and scope undetermined).

### Economic developments: output, prices, labor, external, fiscal, and financial sector
- Output and inflation:
  - Real GDP growth: 2.4 percent in 2017; Q1 2018 GDP grew by 4.8 percent year on year; projected rebound in 2018.
  - Non-mineral GDP decelerated slightly due to indirect effects of BCL closure.
  - Inflation: 12-month rate at 3.1 percent in July 2018; BoB target range 3–6 percent.
- Labor and inequality:
  - Unemployment: around 18 percent; youth unemployment at 25 percent.
  - High public-sector wage premium estimated at nearly 60 percent.
  - Income GINI coefficient estimated at 0.65 in 2009/10.
- Diamond market and minerals:
  - Global: recovery in 2017 with higher demand from the U.S. and China; raw diamond prices broadly flat much of 2017, picking up late 2017/early 2018, but about 15 percent below their 2011 peak.
  - Botswana: production increased in 2017; diamond exports and mineral fiscal revenue fell after a good year in 2016.
  - Historical shares: diamonds accounted for nearly 90 percent of exports historically; net exports fell from over 30 percent of GDP before the global crisis to about 22 percent thereafter; mineral revenue fell from over 20 percent of GDP in the early 2000s to about 12 percent in recent years.
- External position and reserves:
  - Pula stable in real effective terms.
  - International reserves fell from 58 percent of GDP at end-2015 to 41 percent at end-2017; reserves continued to exceed adequacy levels by an ample margin.
  - Balance of payments under-coverage issues: dividends, profits in intercompany accounts, and omissions in diamond companies’ services; adjusted current account surpluses for 2016 and 2017 could be up to 4 percent of GDP lower than currently reported.
- Fiscal developments:
  - Fiscal year begins in April.
  - Total revenue as a share of GDP declined in FY2017/18 vs FY2016/17 as lower mineral and non-tax revenues offset higher SACU receipts.
  - Current expenditure almost unchanged; capital expenditure declined by about 1.7 percent of GDP partly due to under-execution and classification of electricity subsidies as capital.
  - Public debt (domestic and external) low at 19 percent of GDP at end-FY2017/18.
- Monetary policy and financial sector:
  - Bank rate reduced to 5 percent in October 2017.
  - BoB lifted restrictions on central bank certificate issuance and expanded eligible securities as collateral.
  - Credit growth decelerated; banks’ profitability and liquidity declined; nonperforming loans increased somewhat but system remained well capitalized.
  - Adoption of Pillar 2 requirements under Basel II improved BoB’s assessment of concentration risks.

### Outlook and risks — baseline and alternative scenarios
- Baseline assumptions and medium-term outlook:
  - Growth rebound in 2018 after BCL closure one-off effect.
  - Monetary policy expected to remain accommodative; inflation expected to remain within BoB’s target.
  - Global diamond demand expected to increase slowly; baseline assumes moderate real diamond price increases over next 5 years but remain below peak.
  - Botswana diamond revenues: baseline projects lower taxes and dividends in the medium term at 9–10 percent of GDP compared to about 12 percent in recent years due to large mine investments financed by cash flows.
  - SACU revenues: regional activity expected to improve but recovery not expected to be strong enough, implying SACU transfers could decrease somewhat as a share of GDP at least until 2020.
- Balance of risks:
  - Slightly tilted to the downside.
  - Downside risks: delays or weak implementation of fiscal and structural reforms; lower-than-expected diamond receipts; lower SACU revenues if South Africa weakens.
  - Upside risks: stronger global demand for diamonds and minerals; steadfast implementation of key structural reforms.
- Slow-reform (alternative) scenario assumptions and consequences:
  - Assumes no rationalization of VAT exemptions, no reform of property taxation, continued increases in current spending, minor efficiency gains, and little progress on business environment reforms.
  - Consequences: protracted fiscal deficit, higher debt and/or declines in government savings and foreign reserves, slippages in competitiveness and lower medium-term growth.

### Macroeconomic and fiscal outlook — projections and fiscal strategy
- Fiscal projections for 2018/19:
  - Projected deficit of 3–4 percent of GDP (higher than the 1.8 percent of GDP deficit envisaged in the FY2018/19 budget).
  - Additional spending including a 3 percent nominal increase in public sector wages adopted in April 2018 not factored into the budget.
- Buffers and output gap:
  - Overall fiscal position manageable in 2018/19 given sizable buffers and small output gap estimated at -1.7 percent at end-2017.
- Fiscal consolidation path and objectives:
  - Consolidation should be gradual to avoid negative impact on activity.
  - Under baseline, budget projected to return to fiscal balance by 2023/24 based on:
    - Improvements in tax administration and spending efficiency.
    - Maintenance of a freeze in hiring civil servants.
    - Gradual elimination of electricity subsidies.
    - Prioritization of capital projects with higher payoffs.
- Domestic revenue measures and yields:
  - Removal of selected VAT exemptions could yield about 0.3 percentage points of GDP in the medium-term.
  - Reform of property taxation could yield about 0.6 percentage points of GDP in the medium-term.
- Contingency options:
  - Preserve capital expenditures and curtail non-priority spending if the deficit is reduced later in the year.
  - Consider increases in excise taxes if mineral revenue collection disappoints.

### Public finance management and tax policy recommendations
- Tax administration progress:
  - Improvements: e-filing of returns, strengthened Large Taxpayers' Unit, strategy to lower tax arrears.
  - Tax collection (as share of GDP) has declined owing to introduction of exemptions.
- Recommended tax policy measures:
  - Include provisions in Tax Administration Act and VAT/income tax bills to reduce zero rated and exempt items; use cash transfers to mitigate impacts on low-income households.
  - Increase property tax rates and widen coverage.
  - Repeal exemptions to passive capital income (interest, dividends); apply a single withholding income tax rate to passive income and capital gains.
  - Avoid tax concessions unless supported by cost-benefit analysis; if used, prefer accelerated depreciation or investment tax credits.
- Expenditure management and transparency:
  - Improve forecasting, strengthen the MTEF, implement new charts of accounts, properly classify recurrent and capital expenditures, integrate MTEF in budget process, move to performance-based budgeting.
  - Timely publication of budget proposals, supplementary budgets, reviews, quarterly reports, and medium-term fiscal framework.
  - Integrate special funds into budget approval with enhanced scrutiny.
- Fiscal data scope note:
  - Fiscal data include budgetary central government units but exclude extrabudgetary funds.

### Monetary and exchange rate policy guidance
- Monetary stance:
  - Likely to remain accommodative but adjustable if inflation pressures arise.
  - BoB to monitor liquidity and adjust policy if fuel price hikes and expansionary fiscal policy push inflation toward the upper objective range.
- Exchange rate regime and external position:
  - Crawling peg exchange rate system remains appropriate.
  - Real effective exchange rate currently 2 percent above its 10-year average.
  - Since 2005 Botswana maintained a crawling peg against a basket (South African Rand 45 percent and SDR 55 percent).
  - In January 2018 the rate of crawl was decreased from 0.26 to  -0.30 while basket weights remained unchanged.
  - External current account projected to remain in surplus and support accumulation of international reserves.

### Financial sector stability, supervision, and development
- Financial soundness and risks:
  - Risk from higher nonperforming loans is low as they affect a few non-systemic banks.
  - Household indebtedness reportedly increased; data scant; BoB agreed to use the 2015/16 household survey to assess indebtedness and develop a real estate price index.
  - Macroprudential tools (e.g., loan-to-value ratios) may be considered if needed.
- Supervisory and regulatory reforms planned:
  - Set up macroprudential function with BoB responsible for financial stability.
  - Finalize revisions to the Bank of Botswana Act and the Banking Act to set up a crisis resolution framework.
  - Strengthen cooperation among regulators; improve macro-financial risk assessment and consolidated supervision.
  - Implement Basel III provisions and strengthen AML/CFT framework.
  - Improve capacity of the Nonbank Financial Institutions Regulatory Authority (NBFIRA) for risk-based supervision and technological innovation.
- Financial development priorities:
  - Strengthen creditor database and collateral registry.
  - Increase volume and frequency of government bond issuance; current government bond issuance about 6 percent of GDP.
  - Improve electronic connectivity and clearing house; adopt CPSS/IOSCO Principles for Financial Market Infrastructures.
  - Mobile payments reforms: current cap on daily payments and account balances P4,000; recommend gradually increasing ceilings, allowing interoperability, and promoting cross-border mobile transfers.

### Public sector reforms to lift growth potential and equity
- Rationale:
  - Reforms needed to enable private sector expansion, create jobs, diversify exports, and reduce income inequality.
  - Gradual reduction in size of public sector in constrained revenue environment to focus on high-quality services.
- Parastatals and privatization:
  - At end-2017 there were 61 parastatals, comprising 24 commercial enterprises.
  - Many parastatals inefficient with overlapping mandates and fiscal costs.
  - Short-term priorities: rationalize parastatals and privatize key enterprises, notably Air Botswana, Botswana Meat Commission (BMC), and National Development Bank.
  - Avoid creating new parastatals; strengthen oversight, transparency, professionalize boards, and adopt private management models.
- Public service efficiency and payroll:
  - Freeze hiring of personnel recently implemented.
  - Recommended: modernize service delivery via e-government, review payroll to align with productivity (noting quasi-automatic annual real wage increases of about 3 percent), undertake civil service reform and strategic staffing review.
- Public investment and procurement:
  - Revisit NDP11 projects; prioritize projects with highest rates of return and positive externalities (e.g., IT, transport, tourism, beef).
  - Consolidate procurement and PPP framework progress; revise public investment program for better planning and monitoring.

### Social policy, equity, and subsidy reform
- Property taxation and local government finance:
  - Increase property tax rates and coverage contingent on land registration and valuation improvements.
- Social spending targeting and reform:
  - Education spending skewed toward tertiary education; only 16.4 percent enroll in tertiary education.
  - Recommendations: study shifting spending to lower education levels, introduce fees and means-testing for bursaries, increase cost-recovery for tertiary education.
  - Generalize social registry, implement means-testing, redesign programs, migrate targeting from individuals to households.
  - Ministry of Local Government compiling centralized registry for social assistance beneficiaries in four pilot regions with World Bank support.
  - IPELEGENG public works: reform payments reported higher than minimum wage by recalibrating benefits, extending duration and number of beneficiaries, and regional distribution using poverty criteria.
- Electricity subsidies:
  - Electricity subsidies about 0.8 percent of GDP; plan to raise tariffs toward cost-recovery by 2020.

### Authorities’ responses and commitments
- Authorities broadly agreed with assessment of outlook and risks; reaffirmed commitment to fiscal consolidation and key reforms to transition to advanced economy status.
- Agreed policy intentions include:
  - Gradually return to fiscal surpluses, improve tax administration, contain recurrent spending.
  - Improve budget transparency; prepare cabinet memorandum to manage special funds.
  - Moratorium on creating new parastatals; identify overlaps.
  - Appoint parastatal CEOs and board members based on professional competence.
  - Midterm review of NDP11 in 2019 to reprioritize investment projects.
  - Expect to privatize key enterprises though timelines uncertain.

### Job creation and economic diversification — strategic priorities and sectoral reforms
- Strategic objectives:
  - Lower cost of doing business; loosen labor market rigidities; improve skills; develop sectors with latent comparative advantage; promote financial deepening and inclusion.
- Doing business and administrative reforms:
  - Botswana lost 10 places in Doing Business rankings, now 81st of 190; ranks 153rd in "starting a business".
  - One-stop center operational; online business registration legislation enacted.
  - Quick wins: electronic filing for all companies, streamlined licensing, creditor rights reform; reforms need clear timelines and accountability under High Level Consultative Committee chaired by the President.
- Labor market and skills:
  - 2015–20 Education and Training Sector Strategic plan includes technical and professional pathways from 2019.
  - Need to resolve coordination across ministries; unify graduates' registry with jobseeker database and open to private sector.
  - Strengthen labor market planning capacity and harmonize skills development with time-bound plans.
  - Visa and work permit reform: adopt transparent, automated, risk-based policies with published data.
- Sectoral, market-friendly reforms:
  - Beef sector:
    - Current exports about US$80 million; IMF staff estimate exports could easily triple from US$80 million with liberalization.
    - Recommendations: remove BMC export monopoly; privatize BMC; sell underutilized Francistown abattoir; align farm-gate prices with international prices; allow export of live animals; liberalize domestic beef imports to free capacity for exports.
  - Tourism:
    - Current export receipts about US$700 million and 26,000 employed.
    - Potential: a focused strategy could nearly double export receipts and employment medium to long-term.
    - Recommendations: cost-benefit estimates across regions; specialized hospitality training; improve air access and airport infrastructure; liberalize work permits/visas; review licensing and land lease values to capture more value chain.
  - Financial deepening and inclusion:
    - Private sector credit-to-GDP 31 percent vs 100 percent in upper middle-income peers.
    - Lending concentrated on households (60 percent).
    - Recommendations: strengthen creditor database and collateral registry; increase government bond issuance (government bond issuance around 6 percent of GDP); improve electronic connectivity; adopt CPSS/IOSCO principles; expand mobile payments by raising P4,000 cap and enabling interoperability.

### Data, capacity, and implementation governance
- Public sector capacity:
  - Continue engaging international partners and hiring qualified expertise; medium-term strategy prepared integrating surveillance priorities with TA and training.
- Statistical priorities:
  - Improve classification of recurrent and capital outlays; disaggregate transfers in fiscal accounts.
  - Correct deficiencies in current and financial accounts to reduce BOP errors and omissions; a revised BOP expected later this year.
  - Verify GDP sources/methodology and identify improvements.
- Implementation and governance recommendations:
  - Overcome implementation challenges through leadership, transparency, accountability, and capacity building.
  - Authorities should announce focused plans with objectives, measures, quantitative targets where possible, timelines, responsibilities, and resolution/escalation mechanisms.

### Key macro-financial data and projections (selected exact figures)
- Real GDP growth (calendar years and projections): 2014: 4.1; 2015: -1.7; 2016: 4.3; 2017: 2.4; 2018: 4.6; 2019: 3.6; 2020: 4.0; 2021: 4.1; 2022: 4.2; 2023 Prel.: 5.5
- Diamond production (millions of carats): 2014: 24.7; 2015: 20.8; 2016: 20.9; 2017: 22.9; 2018: 24.2; 2019: 24.5; 2020: 25.3; 2021: 25.5; 2022: 25.8; 2023 Prel.: 28.0
- Gross official reserves (end period, US$ millions): 2014: 8,323; 2015: 7,546; 2016: 7,189; 2017: 7,502; 2018: 7,865; 2019: 8,202; 2020: 8,763; 2021: 9,573; 2022: 10,723; 2023 Prel.: 12,198
- Months of imports of goods and services (end period): 2014: 12.7; 2015: 13.6; 2016: 14.6; 2017: 13.2; 2018: 13.1; 2019: 12.7; 2020: 12.9; 2021: 13.4; 2022: 13.4; 2023 Prel.: 13.6
- Current account (percent of GDP): 2014: 13.2; 2015: 5.6; 2016: 13.7; 2017: 12.3; 2018: 9.5; 2019: 8.8; 2020: 8.5; 2021: 9.2; 2022: 9.8; 2023 Prel.: 10.4
- Total central government debt (percent of GDP): 2014: 22.6; 2015: 23.3; 2016: 21.3; 2017: 19.4; 2018: 18.9; 2019: 18.9; 2020: 18.5; 2021: 17.4; 2022: 15.9; 2023 Prel.: (table lists values)
- Private sector credit to GDP (percent): 2014: 31.0; 2015: 33.7; 2016: 31.5; 2017: 31.4; 2018: 30.9; 2019: 30.9; 2020: 30.9; 2021: 31.0; 2022: 30.9; 2023 Prel.: 30.6
- Selected financial soundness indicators (nonperforming loans to total gross loans): 2014: 3.6; 2015: 3.9; 2016: 4.4; Mar-17: 5.5; Jun-17: 5.2; Sep-17: 5.6; Dec-17: 5.3
- Monetary base annual % change (selected): 2014: -8.5; 2015: 18.6; 2016: 3.7; 2017: -13.7; 2018: 11.3

### Public debt and sustainability assessments
- Gross public debt (central government only) fell from 21.3 percent of GDP in FY16/17 to 19.4 percent of GDP in FY2017/18.
- Primary deficit projected to average 2.1 percent of GDP over FY2018/23.
- Debt financing assumptions: mix of domestic debt (within limit of 6 percent of GDP for bond issuance per year) and withdrawal of deposits.
- Public debt projected to remain stable next three years then decline in FY2021/22 reaching 15.9 percent of GDP in 2023/24; legislative ceiling 40 percent of GDP.
- Stress test scenarios:
  - Constant primary balance at 2018/19 level: public debt would reach 24.6 percent of GDP in 2023/24.
  - Contingent liabilities shock (SOEs default 50 percent of debt to banks = 2.5 percent of GDP) plus growth shock and interest rate deterioration: debt-to-GDP rises to about 23 percent in 2020 and declines thereafter; gross financing needs would reach 7 percent of GDP in 2019 but manageable given buffers.

### External stability and reserve adequacy
- At end-2017 international reserves about US$7.5 billion, equivalent to 41 percent of GDP or 13 months of imports.
- BoB’s preferred coverage measure excluding diamond re-exports: 17 months at end-2017.
- IMF metric indicates reserves of 12 to 18 percent of GDP would be adequate; current holdings at 42 percent of GDP exceed adequacy by wide margin.
- Using 25 percent weight for exports to reflect diamond volatility increases adequacy range to 18–25 percent of GDP; current reserves exceed upper bound by 68 percent.

### Fiscal incidence, poverty, and inequality — key findings and policy implications (Appendix V)
- Poverty and inequality trends:
  - Poverty headcount fell from 30.6 percent in 2002–03 to 19.3 percent in 2009–10.
  - Consumption Gini fell from 0.65 to 0.61 in same period.
  - Preliminary 2015–16 survey: national poverty fell by 3 percentage points vs 2009/10; consumption Gini rose from 0.49 to 0.52.
- Fiscal incidence results (selected exact metrics, using 2009/10 BCWIS):
  - Market Income: Gini 0.639; Headcount 0.239; Poverty Gap 0.100
  - Market Income + Pensions: Gini 0.636; Headcount 0.236; Poverty Gap 0.096
  - Final Income: Gini 0.534; Headcount 0.053; Poverty Gap 0.013
  - Two-thirds of gains in poverty and inequality reduction attributed to education and health (in-kind transfers).
- Tax and spending composition:
  - SACU and diamonds: about 58 percent of tax revenue and 13 percent of GDP.
  - Non-mineral income tax: 26 percent of total tax revenue and 6 percent of GDP.
  - VAT rate: 12 percent on standard supplies; VAT collection to GDP fell from about 6 percent in 2008/9 to about 3.5 percent in 2016/17.
  - Education spending: about one quarter of total spending; 7.5 percent of GDP (6 percent excluding post-secondary bursaries and overseas training).
  - Cash and near-cash transfers total 4–4.5 percent of GDP.
  - Electricity subsidy reached 1.4 percent of GDP in 2015/16; village electrification subsidy cost approx BWP 262 million per annum funded through universal electricity levy.
- Incidence of taxes and transfers (marginal effects, percent points as reported):
  - Direct Taxes (Size 0.049): Marginal Effect, Gini 0.887; Marginal Effect, Poverty Headcount -0.206
  - Indirect Taxes (Size 0.064): Marginal Effect, Gini -0.128; Marginal Effect, Poverty Headcount -2.630
  - Direct Transfers aggregate (Size 0.035): Marginal Effect, Gini 2.158; Marginal Effect, Poverty Headcount 4.490
  - Education (aggregate Size 0.222): Marginal Effect, Gini 7.020; Marginal Effect, Poverty Headcount 15.382
- Policy-relevant implications:
  - Fiscal policy has significantly reduced poverty and inequality, mainly via in-kind transfers and direct social assistance.
  - Scope to increase redistributive impact by better targeting direct transfers (reduce share going to top 40 percent; increase share to poorest decile).
  - Refocusing education spending toward primary level could yield larger poverty and inequality reductions.
  - Removing selected VAT exemptions could boost revenue with minor poverty/inequality effects; compensation via cash transfers is affordable.
  - Greater reliance on direct taxes, notably property taxation (wider coverage and higher rates), could enhance equality while mobilizing revenue.
  - Electricity subsidies largely benefit wealthier households; elimination with targeted cash transfers recommended.

### Simulations (selected scenario outcomes from Appendix V)
- Scenario 1. More progressive PIT schedule (30 percent bracket at BWP 216k/year; 35 percent bracket at BWP 324k/year): Size 3.5% (net impact on budget as percent of ex ante revenues/expenditures); Change in Inequality (Gini) 0.0; Change in Poverty (headcount) 0.0.
- Scenario 2. Removing some VAT exemptions (private education and health services, sugar and fuel): Size 7.7%; Change in Inequality 0.0; Change in Poverty (headcount) 0.2; Spending effectiveness 3.4%.
- Scenario 3. Shifting education spending to lower levels (reallocations in per-pupil amounts): Size -0.2%; Change in Inequality -1.1; Change in Poverty (headcount) -0.5.
- Scenario 4. Eliminating electricity subsidies totally: Size 36.0%; Change in Inequality 0.1; Change in Poverty (headcount) 0.1; Spending effectiveness 3.7%.
- Scenario 5. Eliminating electricity subsidies only for consumption>200Kwh: Size 9.5%; Change in Inequality 0.0; Change in Poverty (headcount) 0.1; Spending effectiveness 4.5%.
- Aggregate interpretation: revenue-enhancing measures (VAT, PIT, electricity) have only small effects on poverty and inequality (never more than 0.2 percentage points in poverty/inequality for most measures) while generating significant additional revenue; compensation via cash transfers to the poor is feasible.

### Implementation, TA, and relations with the IMF
- Authorities largely agreed with priorities and plan to cooperate with IMF on TA, training, and prioritization of activities while deploying human resources for traction.
- IMF technical assistance and workshops (May 2017–June 2018) covered fiscal affairs, legal aspects, macroprudential policy, payments systems, financial stability, monetary operations, and statistical capacity building.
- Data and statistical issues:
  - Data broadly adequate for surveillance but gaps in national accounts, fiscal, monetary, and external statistics remain.
  - Priorities: improve GFS classification, expand MFS coverage to other financial corporations, correct BOP deficiencies, rebasing CPI/GDP, and improve timeliness of central government gross debt and BOP data.

*International Monetary Fund staff report (2018).*

### 2018. The staff team comprised Mr. Gelbard (head), Ms. Ganum, and

### cr18268 - 2018. The staff team comprised Mr. Gelbard (head), Ms. Ganum, and

### CONTEXT
- Botswana is a small upper-middle income country with strong performance on income per capita, governance, rule of law, and macroeconomic management.
- Since 2014 the economy faced a challenging external environment:
  - Global demand for diamonds was volatile because of slower growth in China and demonetization in India.
  - Downward trend in real prices of rough diamonds, lower production, and accumulation of inventories.
  - Exports of other minerals collapsed since 2016 owing to low international prices and the closure of the largest copper-nickel mine.
- Authorities’ policy response supported a partial recovery:
  - Countercyclical fiscal policy after the 2015 slowdown.
  - Bank of Botswana loosened monetary policy, supporting non-mining activity.
- Development model limits and structural challenges:
  - Diamond cum public sector-led model showing limitations; non-mining potential growth declined (production function approach) due to lower capital accumulation and sluggish productivity gains (Box 1).
  - Reliance on government expansion and nontradable goods in a small domestic market, slow progress in removing distortions, and an unfocused development strategy led to limited gains in employment, income equality, and export diversification.
- Progress and gaps in reforms:
  - Prudent macroeconomic management: countercyclical policies, low debt and inflation.
  - Structural progress: financial sector and public financial management reforms; electricity shortages resolved.
  - Lagging reforms: tax policy amendments, public sector efficiency, business environment, education outcomes, and labor skills—attributed to insufficient coordination, accountability, capacity, and political constraints.
- Recent legislative changes and policy announcements:
  - Statutes to facilitate electronic business transactions, improve securities market regulation, settle trade disputes, register tribal land, establish an energy regulatory authority, align customs with the Revised Kyoto Convention, and improve excise tax collection.
  - Political transition: Vice-President Masisi became President in March (ahead of general elections by October 2019); plans announced to liberalize the meat sector, rationalize parastatals, proceed with privatizations, and relax visa and work permit restrictions, though timing and scope remain undetermined.

### ECONOMIC DEVELOPMENTS
- Overall macroeconomic conditions:
  - Despite closure of a major copper mine and volatility in diamonds, macroeconomic conditions remained stable, supported by fiscal and monetary policy.
  - Banks’ profitability and liquidity declined; nonperforming loans increased somewhat, but the banking system remained well capitalized.
- Diamond market and minerals:
  - Global diamonds: recovery in 2017 with higher demand from the U.S. and China; raw diamond prices broadly flat much of 2017, picking up in late 2017 and early 2018, but about 15 percent below their 2011 peak.
  - Botswana: production increased in 2017, but diamond exports and mineral fiscal revenue fell after a good year in 2016 (Table 1 and Box 2).
  - Historical shares: diamonds accounted for nearly 90 percent of exports historically; net exports fell from over 30 percent of GDP before the global crisis to about 22 percent thereafter; mineral revenue fell from over 20 percent of GDP in the early 2000s to about 12 percent in recent years.
- Output, inflation, and labor:
  - Real GDP growth: 2.4 percent in 2017, reflecting closure of BCL and other effects.
  - Non-mineral GDP decelerated slightly due to indirect effects of BCL closure on electricity demand, transportation, trade, and construction.
  - Inflation: 12-month rate at 3.1 percent in July 2018, near the lower band of the BoB target range of 3–6 percent.
  - Unemployment: remained at around 18 percent; youth unemployment at 25 percent. High public-sector wage premium estimated at nearly 60 percent.
  - Income inequality: income GINI coefficient estimated at 0.65 in 2009/10.
- External position and reserves:
  - Pula stable in real effective terms; current account in surplus though surplus may be overestimated.
  - International reserves fell from 58 percent of GDP at end-2015 to 41 percent at end-2017 but continued to exceed adequate levels by an ample margin.
  - Statistical issues: Balance of payments under-coverage of dividends, profits deposited in intercompany accounts, and omissions in diamond companies’ services; once adjusted, current account surpluses for 2016 and 2017 could be up to 4 percent of GDP lower than currently reported.
- Fiscal developments:
  - Fiscal year convention: fiscal year begins in April.
  - Total revenue as a share of GDP declined in FY2017/18 compared to FY2016/17 as lower mineral and non-tax revenues offset higher SACU receipts.
  - Current expenditure remained almost unchanged: higher wages and transfers to parastatals and local governments offset by lower bursaries for tertiary education and lower spending on goods and services.
  - Capital expenditure declined by about 1.7 percent of GDP, partly due to under-execution and lower electricity subsidies (electricity subsidies are currently classified as capital expenditures).
  - Public debt (domestic and external) low at 19 percent of GDP at end-FY2017/18.
- Monetary policy and financial sector:
  - Bank rate reduced to 5 percent in October 2017 to respond to weak activity and low inflation.
  - BoB lifted restrictions on issuance of central bank certificates and expanded the range of securities usable as collateral.
  - Credit growth decelerated due to weaker demand and risk aversion.
  - Financial sector: BCL closure and lower diamond polishing increased non-performing loans in some non-systemic banks, raised provisions and write-offs, and reduced profitability and deposits; system remained well capitalized and liquidity above regulatory thresholds.
  - Adoption of Pillar 2 requirements under Basel II improved BoB’s ability to assess concentration risks.

### OUTLOOK AND RISKS
- General outlook:
  - Medium-term prospects are good conditional on decisive implementation of key reforms and growth-friendly fiscal consolidation.
  - Alternative less-benign scenario: weaker reforms and insufficient fiscal adjustment could yield disappointing growth and erosion of buffers.
- Baseline scenario assumptions and projections:
  - Growth rebound in 2018 after BCL closure one-off effect: Q1 2018 GDP grew by 4.8 percent year on year.
  - Monetary policy: expected to remain accommodative; inflation expected to remain within BoB’s target.
  - Global diamond demand expected to increase slowly; government announcements assumed to yield important reforms improving public sector efficiency and the business environment, strengthening medium-term prospects.
  - Fiscal consolidation assumed to adjust for possible lower mineral and SACU revenue via rationalizing public spending and parastatals and strengthening domestic tax collection.
- Diamond and SACU revenue outlook (Box 3):
  - Diamond market: inventories normalized recently; recovery in retail sales in U.S., China, and India; prices started to pick up. Baseline assumes moderate real price increases over next 5 years but remain below peak; forecast hinges on global economy, consumer preferences, and low-cost synthetic diamonds risk.
  - Botswana diamond revenues: despite higher prices and production, large investments needed in diamond mines over next five years; assuming investments financed by cash flows, baseline projects lower taxes and dividends in the medium term (9–10 percent of GDP compared to about 12 percent in recent years).
  - SACU revenues: regional activity expected to improve but recovery not expected to be strong enough, especially in South Africa, implying SACU transfers could decrease somewhat as a share of GDP at least until 2020.

*International Monetary Fund staff report (2018).*

### 13.      The balance of risks is slightly tilted to the downside. In coming years, the main

### 13.      The balance of risks is slightly tilted to the downside.

### Main risks and alternative scenario
- Downside risks:
  - Delays or weak implementation of fiscal and structural reforms.
  - Lower-than-expected diamond receipts due to adverse developments in advanced economies, shifts in consumer preferences, and the emergence of synthetic diamonds.
  - Lower SACU revenues in case of weaker than expected growth or adverse developments in South Africa.
- Upside risks:
  - Stronger-than-envisaged global demand for diamonds and other minerals.
  - Steadfast implementation of key structural reforms leading to improved competitiveness and higher economic growth than in the baseline.
- Alternative (slow-reform) scenario assumptions:
  - No rationalization of VAT exemptions and no reform of property taxation.
  - Continued increases in current spending (especially on transfers to parastatals and subsidies).
  - Minor efficiency gains and no reprioritization of investment projects in the 11th National Development Plan (NDP11).
  - Little progress on business environment reforms.
- Consequences of slow-reform scenario:
  - Protracted fiscal deficit, higher debt and/or declines in government savings and foreign reserves.
  - Slippages in competitiveness and lower medium-term growth.

### Macroeconomic and fiscal outlook
- Fiscal projections for 2018/19:
  - Point to a deficit of 3–4 percent of GDP.
  - The projected deficit is higher compared to the 1.8 percent of GDP deficit envisaged in the FY2018/19 budget, primarily because mineral revenues are likely to be lower and additional spending items (including a 3 percent nominal increase in public sector wages adopted in April 2018) were not factored in the budget.
- Buffers and output gap:
  - Overall fiscal position in 2018/19 is manageable given sizable buffers and a small output gap estimated at -1.7 percent at end-2017.
- Fiscal path and objectives:
  - Fiscal consolidation should be gradual to avoid negative impact on activity.
  - Under the baseline, the budget is projected to return to fiscal balance by 2023/24 based on:
    - Improvements in tax administration and spending efficiency.
    - Maintenance of a freeze in hiring civil servants.
    - Gradual elimination of electricity subsidies.
    - Prioritization of capital projects towards those with higher payoffs.
- Domestic revenue measures and expected yields:
  - Removal of selected VAT exemptions could yield about 0.3 percentage points of GDP in the medium-term.
  - Reform of property taxation could yield about 0.6 percentage points of GDP in the medium-term.
- Contingency options:
  - Preserve capital expenditures and curtail non-priority spending if authorities decide to reduce the deficit later in the year.
  - Consider increases in excise taxes if mineral revenue collection disappoints.

### Public finance management and transparency
- Tax administration progress:
  - Improvements include e-filing of returns, strengthening of the large taxpayers' unit, and a strategy to lower tax arrears.
  - Tax collection (as a share of GDP) has declined owing to the introduction of exemptions in recent years.
- Recommended tax policy measures:
  - Include provisions in the forthcoming Tax Administration Act and VAT and income tax bills to reduce the list of zero rated and exempt items while using cash transfers to mitigate impact on low-income households.
  - Increase property tax rates and widen coverage of properties.
  - Repeal exemptions to passive capital income (e.g., interest, dividends), apply a single withholding income tax rate to this income and capital gains.
  - Avoid tax concessions unless supported by well-justified cost-benefit analysis; if used, prefer accelerated depreciation schemes or investment tax credits.
- Expenditure management improvements planned:
  - Improve forecasting capacities, strengthen the medium-term expenditure framework (MTEF).
  - Implement new charts of accounts, appropriately classify recurrent and capital expenditures.
  - Better integrate the MTEF in the budget process and move to performance-based budgeting.
- Budget transparency actions:
  - Timely publication (especially online) of budget proposals, supplementary budgets, reviews, quarterly reports, and the medium-term fiscal framework, with explanations of deviations.
  - Integration of special funds into the budget approval process with enhanced scrutiny on their spending.
- Fiscal data scope note:
  - The fiscal data include budgetary central government units but do not include extrabudgetary funds.

### Monetary and exchange rate policy
- Monetary stance:
  - Likely to remain accommodative but could be adjusted if inflation pressures arise.
  - Current stance consistent with subdued inflation and expected closing of the output gap.
  - Central Bank to monitor liquidity conditions and adjust policy if fuel price hikes and expansionary fiscal policy push inflation towards the upper level of the objective range.
- Exchange rate regime and external position:
  - The crawling peg exchange rate system remains appropriate.
  - The real effective exchange rate is currently 2 percent above its 10-year average.
  - Since 2005 Botswana has maintained a crawling peg mechanism against a basket (the South African Rand and the SDR).
  - In January 2018 the rate of crawl was decreased from 0.26 to  -0.30, while the basket weights remained unchanged at 45 and 55 percent for the Rand and the SDR, respectively.
  - External current account balance is projected to remain in surplus and support the accumulation of international reserves over time.

### Financial sector stability and supervision
- Financial system soundness:
  - Risk from higher nonperforming loans is low as they only affect few non-systemic banks.
  - Household indebtedness has reportedly increased, but data are scant; this complicates vulnerability assessment.
  - BoB agreed to use the 2015/16 household survey to assess indebtedness and to work towards a real estate price index.
  - Macroprudential tools such as loan-to-value ratios may be considered if needed.
- Supervisory and regulatory reforms planned or underway:
  - Set up a macroprudential function with the Bank of Botswana responsible for financial stability.
  - Finalize revisions to the Bank of Botswana Act and the Banking Act to set up a crisis resolution framework.
  - Strengthen cooperation among regulators and improve assessments of macro-financial risks, including through consolidated supervision.
  - Implement Basel III provisions and strengthen the anti-money laundering framework.
  - Improve capacity of the Nonbank Financial Institutions Regulatory Authority to perform risk-based supervision and enable technological innovations.
- AML/CFT:
  - In line with recommendations of the 2017 assessment of the Eastern and Southern Africa Anti-Money Laundering Group, authorities plan to improve AML/CFT supervision; a progress report is expected by end-2018.

### Public sector reforms to lift growth potential and equity
- Rationale:
  - Reforms needed to enable private sector expansion, create jobs, diversify exports, and reduce income inequality.
  - In an environment of constrained mineral and SACU revenues, a gradual reduction in the size of the public sector would allow focus on providing high-quality services more efficiently.
- Parastatals and privatization:
  - At end-2017 there were 61 parastatals, comprising 24 commercial enterprises.
  - Many parastatals are inefficient, have overlapping mandates, unclear value-addition, and contribute to fiscal costs and contingent liabilities.
  - Short-term priorities: rationalize parastatals and privatize key enterprises, notably Air Botswana, the Botswana Meat Commission, and the National Development Bank.
  - Staff supported avoiding creation of new parastatals, strengthening financial oversight, improving transparency, professionalizing parastatal boards, and adopting private management models.
- Public service efficiency and payroll:
  - Focus on cost-effectiveness and quality of public services over the medium-term.
  - Recent step: freeze hiring of personnel.
  - Recommended actions:
    - Modernize service delivery and eliminate bureaucratic practices through e-government and removal of red tape.
    - Review the payroll system to align it with productivity (note: in recent years there has been a quasi-automatic annual increase in real wages of about 3 percent not linked to productivity).
    - Embark on civil service reform as private sector develops, reallocate resources and potentially reduce personnel based on a strategic staffing review.
- Public investment and procurement:
  - Revisit projects in NDP11 and formulate a new list focused on projects with highest rates of return and positive externalities (e.g., IT infrastructure, transport), and those benefiting sectors with potential comparative advantage (e.g., tourism and beef).
  - Consolidate recent progress on procurement and the public-private partnership framework; revise public investment program for better planning and monitoring.

### Equity, social spending, and subsidies
- Property taxation and local government finance:
  - Increase property tax rates and coverage to reorient investment and improve equality, contingent on progress with land registration and valuation improvements.
- Social spending targeting and reform:
  - Education spending has boosted enrollment but is skewed toward tertiary education and mostly benefits the wealthiest; generous tertiary bursaries discourage vocational training and exacerbate skills mismatches.
  - Authorities are studying spending more at lower levels of education, introducing fees and means-testing for bursaries, and increasing cost-recovery for tertiary education.
  - Food and old-age pension programs are helpful but contain overlaps; beneficiaries may access multiple programs.
  - Proposed measures: generalize the social registry, implement means-testing, redesign some programs, and migrate targeting from individuals to households (Appendix V).
  - The Ministry of Local Government and Rural Development has started compiling a centralized registry of beneficiaries of social assistance for four pilot regions with World Bank support.
  - Specific program reform example: IPELEGENG public works payments are reportedly higher than the minimum wage and could be reformed by recalibrating benefits, extending duration and number of beneficiaries, and distributing places regionally using poverty criteria.
- Electricity subsidies:
  - Authorities plan to further reduce electricity subsidies (about 0.8 percent of GDP) by raising tariffs towards cost-recovery by 2020.

### Authorities' responses and commitments
- The authorities broadly agreed with the assessment of the outlook and risks and are aware of downside scenarios.
- They reaffirmed commitment to fiscal consolidation and expect key reforms to materialize over time alongside the goal to transition to advanced economy status.
- On growth projections, authorities noted recent slowdown was partly due to exogenous factors and GDP growth could be slightly higher than in the baseline.
- Agreed policy intentions:
  - Gradually return to fiscal surpluses, improve tax administration, and contain recurrent spending.
  - Improve budget transparency and prepare a cabinet memorandum to strengthen management of special funds.
  - Maintain a moratorium forbidding creation of new parastatals and identify overlaps.
  - Appoint CEOs and board members of parastatals based on professional competence.
  - Carry out a midterm review of NDP11 in 2019 to review and reprioritize investment projects.
  - Expect to privatize key enterprises, though timelines (notably for the National Development Bank) were uncertain.

*Sources: Bank of Botswana and IMF staff.*

### 33.      Job creation and economic diversification are central to Botswana’s development.

### Job creation and economic diversification are central to Botswana’s development

### Key challenges and strategic objective
- Job creation and export diversification are essential alongside macroeconomic stability and public-sector reforms.
- Structural reforms must be time-bound and aimed at:
  - lowering the cost of doing business;
  - loosening labor market rigidities and improving skills;
  - enabling development of sectors with latent comparative advantage;
  - promoting financial deepening and inclusion.

### Lowering the cost of doing business
- Recent performance and rankings:
  - Botswana lost 10 places in the Doing Business rankings and now ranks 81st out of 190 countries.
  - Botswana ranks 153rd in the "starting a business" category.
- Recent improvements and planned actions:
  - One-stop center for registering new businesses established; legislation to allow online business registrations enacted.
  - Authorities plan to update the 2015 doing business roadmap in collaboration with the World Bank.
  - Quick wins identified: adoption of electronic filing for all companies; streamlined licensing requirements; reforms to improve creditors’ rights.
  - Reforms should have clear timelines, accountability, and close monitoring by the High Level Consultative Committee chaired by the President.

### Loosening labor market rigidities and strengthening skills
- Education and training reforms:
  - 2015–20 Education and Training Sector Strategic plan includes introduction in 2019 of technical and professional pathways at the senior secondary education level.
  - Implementation requires resolving coordination problems across multiple ministries (technical and vocational training falls under three separate ministries) and clearer definition of responsibilities.
  - A public expenditure review is expected to be conducted in the coming year in collaboration with the World Bank to improve spending efficiency.
- Labor market policy recommendations:
  - Proceed with plans to unify the graduates' registry with the jobseeker database and open it to the private sector.
  - Strengthen capacity for planning and policy analysis of the labor market and ensure frequent input from the private sector on education and training policies.
  - Harmonize the approach to skills development among concerned ministries through time-bound plans and set up a technical and vocational training supervisory body within the relevant ministry.
- Visa and work permits:
  - Existing policies have been overly restrictive and bureaucratic, involving manual applications, proof that domestic skills are unavailable, and frequent rejections without justification—detrimental to private investment and skill transfer.
  - Staff recommendations: adopt transparent policies with automated and flexible risk-based requirements and timelines; monitor outcomes; aim at a low appeal rate; publish data on applications, approvals and rejections.
  - Authorities indicated plans to decide on precise actions and timelines.

### Implementing market-friendly sectoral reforms
- Strategic focus:
  - Authorities engaged an international consulting firm to advise on developing beef, tourism, and financial services sectors.
  - Staff emphasized removing government-induced distortions and bottlenecks, promoting greater competition, and prioritizing public investments and reforms with highest payoffs and externalities.
- Cattle and beef sector recommendations:
  - Current context: quota and duty-free access to the EU market; current exports about US$80 million.
  - Potential: exports could easily triple from current sales of US$80 million if the market is liberalized.
  - Short-term actions:
    - Remove the Botswana Meat Commission (BMC)'s export monopoly to allow new investments and participants; privatize the company; reduce excess capacity by selling the Francistown abattoir (underutilized and unprofitable).
    - Align prices paid to high quality producers on international prices (prices presently preset) and allow exportation of live animals to raise profitability and increase competition.
    - Liberalize imports of beef for the domestic market and consider allowing imports of live animals to be slaughtered domestically to use idle capacity for domestic supply or re-export in the region.
- Tourism sector recommendations:
  - Current levels: about US$700 million in export receipts and 26,000 people employed.
  - Potential: a focused and well-executed strategy could, in the medium to long-term, nearly double export receipts and employment compared to current levels.
  - Strategy elements:
    - Produce detailed estimates of costs and benefits across tourism regions to prioritize investments in product and geographic diversification.
    - Address supply-side constraints via specialized hospitality and business management training, improve air access (foster competition in domestic and regional flights), and invest in airport infrastructure and internet connectivity in regions with identified potential.
    - Eliminate bureaucratic rigidities: liberalize restrictions for work permits and visas; adopt simplified requirements for provision of tourism facilities and services; promote dissemination of information.
    - Capture a larger portion of the value chain and minimize leakages by reviewing the licensing system and the lease value of land in tourist sites in future bidding rounds.

### Deepening financial development and fostering inclusion
- Current financial system characteristics:
  - Private sector credit-to-GDP ratio stands at 31 percent of GDP compared to 100 percent in upper middle-income countries.
  - Lending is concentrated on credit to households (60 percent of total loans).
- Staff-recommended measures to boost the financial system’s contribution:
  - Strengthen the creditor database and collateral registry for assets to improve information on borrowers’ creditworthiness and support enforcement of loan contracts.
  - Increase the volume and frequency of government bonds issued to develop a reliable yield curve as a price benchmark.
    - Context: government bond issuance is small at around 6 percent of GDP, compared to 18 percent in Namibia, 30 percent in Mauritius, and 40 percent in South Africa; weak bidding suggests demand may be suppressed by available yields as authorities seek to contain issuance costs.
  - Improve electronic connectivity in the financial system to facilitate advanced transactions and strengthen the clearing house to facilitate trade in derivatives.
  - Adopt the Principles for Financial Market Infrastructures published by CPSS and IOSCO to ensure effective regulations to develop securities’ markets.
- Mobile payments and financial inclusion:
  - Constraints: low cap on daily mobile payments and account balances, high transaction costs, limited options for mobile transactions.
  - Recommendations: gradually increase the ceiling and strengthen supervision; allow interoperability across networks and with bank accounts; promote other payment mechanisms; foster cross-border mobile money transfers to increase efficiency and lower costs for low-income households.

### Other institutional and data issues
- Public sector capacity:
  - Authorities should continue engaging international partners and hiring qualified expertise for technical assistance and to fill key public sector positions.
  - A medium-term strategy has been prepared in consultation with the authorities integrating surveillance priorities with technical assistance and training priorities and envisaging closer engagement to ensure traction.
- Statistical data gaps:
  - Data broadly adequate for surveillance but gaps remain, especially in fiscal and balance of payments accounts.
  - Priorities:
    - Proper classification of recurrent and capital outlays and disaggregation of transfers in fiscal accounts.
    - Correct recently identified deficiencies in both the current account and financial account to reduce errors and omissions in the balance of payments (a revised set of balance of payments statistics is expected to be released later this year).
    - Verify sources and methodology for GDP estimates and identify needed improvements.

### Staff appraisal and policy recommendations
- Recent performance and growth prospects:
  - Economy weathered previous weakness in the global diamond market; non-mining growth remained relatively stable despite closure of a major copper-nickel mine.
  - Potential growth has been slowing due to weak capital accumulation and productivity growth related to sluggish structural reforms, making it hard to reduce unemployment.
- Macroeconomic stance:
  - Crawling peg exchange rate regime continues to serve the country well.
  - Current monetary policy stance is appropriate and can be tightened if inflation pressures build up.
  - Return to fiscal surpluses is warranted given diamond exhaustibility and the need to maintain strong buffers; fiscal adjustment should be gradual and composition matters.
  - Fiscal policy actions: upgrade tax policies to boost revenues and improve tax efficiency (streamline exemptions); rein in recurrent expenditure while preserving infrastructure and social spending.
- Outlook conditional on reforms:
  - Near-term: improving diamond market conditions and fiscal stimulus expected to temporarily boost activity.
  - Medium-term: main challenges are maintaining strong buffers amid possibly constrained mining revenues; improving public sector efficiency; boosting non-mining growth; diversifying exports; lowering unemployment—all hinging on successful implementation of critical structural reforms.
- Components of the recommended new development model:
  - Restructure the public sector and implement policies to enhance growth potential and improve equality:
    - Stop proliferation of parastatals; restructure or privatize existing ones.
    - Accelerate e-government implementation.
    - Formulate civil service reform to reallocate resources and reduce bureaucracy.
    - Strengthen monitoring of public investment projects; discard lower payoff projects in NDP11; prioritize higher potential projects aligned to the new model.
    - Redesign social programs and benefits; move towards cost-reflective electricity tariffs while protecting the most vulnerable; extend coverage of property taxation and raise rates.
  - Market-friendly reforms for private sector development, export diversification, and job creation:
    - Reduce red tape and the cost of doing business; eliminate government-induced distortions (monopolies and entry-restricting regulations); implement market-based solutions to expand the private sector in areas of comparative advantage.
    - Swiftly liberalize granting of visas and work permits; improve labor market information; realign education and technical and vocational policies with private sector skills needs.
  - Deepen financial markets and foster inclusion:
    - Increase government bond issuance volume and frequency; strengthen creditor rights and information; adopt CPSS/IOSCO principles; improve electronic connectivity and clearing house; expand mobile money breadth and depth.
- Implementation and governance:
  - Overcome implementation challenges through leadership, transparency, accountability, and capacity building.
  - Authorities should announce focused plans with objectives, measures, quantitative targets where possible, timelines, responsibilities, and resolution/escalation mechanisms.
  - Build capacity by engaging expertise to provide training and fill public sector positions.

*IMF staff report: Job creation and economic diversification are central to Botswana’s development.*

### 55.      The staff recommends that the next Article IV consultation with Botswana be held on

### The staff recommends that the next Article IV consultation with Botswana be held on the standard 12-month cycle.

### Macroeconomic developments
- Growth slowed due to the collapse of copper and nickel production and sluggish structural reforms.
- Diamond production picked up in 2016-17, but prices fell.
- Inflation has remained low thanks to prudent financial policies.
- Current account surplus has remained high.
- Foreign reserves have shown a declining trend in recent years but have been well above adequacy levels.
- In the past two years, the overall fiscal position was balanced and the non-primary balance (fiscal anchor) improved somewhat.

### Key macro statistics (selected, calendar years and projections)
- Real GDP growth: 2014: 4.1; 2015: -1.7; 2016: 4.3; 2017: 2.4; 2018: 4.6; 2019: 3.6; 2020: 4.0; 2021: 4.1; 2022: 4.2; 2023 Prel.: 5.5
- Mineral growth (2014–2023, selected): 2014: 2; 2015: 0.5; 2016: -19.6; 2017: -3.5; 2018: -11.2; 2019: 5.4; 2020: 1.4; 2021: 4.4; 2022: 4.2; 2023 Prel.: 5.9; 13.0 (note: table shows additional values)
- Nonmineral growth (2014–2023, selected): 2014: 4.9; 2015: 1.7; 2016: 5.5; 2017: 4.2; 2018: 4.5; 2019: 3.9; 2020: 4.0; 2021: 4.1; 2022: 4.1; 2023 Prel.: 4.6
- Consumer prices (average): 2014: 4.4; 2015: 3.1; 2016: 2.8; 2017: 3.3; 2018: 3.8; 2019: 3.9; 2020: 3.8; 2021: 3.9; 2022: 4.0; 2023 Prel.: 4.0
- Diamond production (millions of carats): 2014: 24.7; 2015: 20.8; 2016: 20.9; 2017: 22.9; 2018: 24.2; 2019: 24.5; 2020: 25.3; 2021: 25.5; 2022: 25.8; 2023 Prel.: 28.0
- Gross official reserves (end of period, US$ millions): 2014: 8,323; 2015: 7,546; 2016: 7,189; 2017: 7,502; 2018: 7,865; 2019: 8,202; 2020: 8,763; 2021: 9,573; 2022: 10,723; 2023 Prel.: 12,198
- Months of imports of goods and services (end of period): 2014: 12.7; 2015: 13.6; 2016: 14.6; 2017: 13.2; 2018: 13.1; 2019: 12.7; 2020: 12.9; 2021: 13.4; 2022: 13.4; 2023 Prel.: 13.6
- Months of non-diamond imports (end of period): 2014: 18.5; 2015: 18.3; 2016: 18.9; 2017: 17.7; 2018: 17.8; 2019: 17.3; 2020: 17.3; 2021: 17.9; 2022: 18.2; 2023 Prel.: 18.9

### Macro-financial linkages and credit dynamics
- The slowdown in economic growth impacted lending behavior and credit growth decelerated for both households and corporates.
- Nonperforming loans increased, with potential vulnerability in the households’ segment.
- Credit to GDP has plateaued and has constrained the growth of private consumption.

Key financial figures:
- Credit growth (year-on-year percent change, selected): total, households, corporate trends noted in figure (2009–2017 series shown).
- Household deposits and loans (percent of total loans, 2008–2017 series shown).
- Nonperforming loans (percent of total loans, 2009–2018 series shown): Total, Corporate, Household series in figures.
- Credit to GDP (percent): credit to non-mineral GDP and credit to GDP series shown.
- Household credit and consumption (percent change): private consumption (nominal) and household credit series shown.

### Selected economic indicators (Table 1 highlights)
- GDP per capita (US dollars): 2014: 7,729; 2015: 6,785; 2016: 7,272; 2017: 7,989; further years contain entries in the table.
- Money and banking (annual % change, selected): Monetary Base: 2014: -8.5; 2015: 18.6; 2016: 3.7; 2017: -13.7; 2018: 11.3; 2019: 9.1; 2020: 8.5; 2021: 9.5; 2022: 9.6; 2023 Prel.: 9.8
- Broad money (M2) annual % change: 2014: 4.6; 2015: 19.9; 2016: 5.4; 2017: 2.7; 2018: 9.4; 2019: 9.5; 2020: 9.0; 2021: 9.8; 2022: 9.8; 2023 Prel.: 10.5
- Credit to the private sector (annual % change): 2014: 13.7; 2015: 9.0; 2016: 9.0; 2017: 5.3; 2018: 6.7; 2019: 8.2; 2020: 8.2; 2021: 8.4; 2022: 8.4; 2023 Prel.: 9.1
- Gross investment (including change in inventories, percent of GDP): 2014: 28.2; 2015: 32.6; 2016: 28.6; 2017: 28.1; 2018: 27.5; 2019: 28.9; 2020: 29.7; 2021: 29.7; 2022: 29.8; 2023 Prel.: 29.7
- Gross savings (percent of GDP): 2014: 43.5; 2015: 41.2; 2016: 38.8; 2017: 40.3; 2018: 37.0; 2019: 37.7; 2020: 38.2; 2021: 38.9; 2022: 39.5; 2023 Prel.: 40.2

### Balance of payments (Table 2 highlights)
- Current account balance (US$ millions): 2014: 2,147; 2015: 814; 2016: 2,148; 2017: 2,149; 2018: 1,826; 2019: 1,748; 2020: 1,806; 2021: 2,064; 2022: 2,348; 2023 Prel.: 2,687
- Trade balance (US$ millions): 2014: 762; 2015: -651; 2016: 1,493; 2017: 930; 2018: 658; 2019: 671; 2020: 617; 2021: 643; 2022: 613; 2023 Prel.: 666
- Exports, f.o.b. (US$ millions): 2014: 8,522; 2015: 6,300; 2016: 7,370; 2017: 5,936; 2018: 6,502; 2019: 6,833; 2020: 7,291; 2021: 7,656; 2022: 8,038; 2023 Prel.: 9,030
  - Diamonds (US$ millions): 2014: 7,282; 2015: 5,215; 2016: 6,499; 2017: 5,257; 2018: 5,778; 2019: 6,066; 2020: 6,473; 2021: 6,709; 2022: 6,911; 2023 Prel.: 7,635
- Imports, f.o.b. (US$ millions): 2014: -7,760; 2015: -6,950; 2016: -5,876; 2017: -5,006; 2018: -5,843; 2019: -6,161; 2020: -6,673; 2021: -7,013; 2022: -7,425; 2023 Prel.: -8,364
- Current account (percent of GDP): 2014: 13.2; 2015: 5.6; 2016: 13.7; 2017: 12.3; 2018: 9.5; 2019: 8.8; 2020: 8.5; 2021: 9.2; 2022: 9.8; 2023 Prel.: 10.4
- Overall balance (increase reserves +, percent of GDP): 2014: 3.7; 2015: -5.4; 2016: -2.3; 2017: 1.8; 2018: 1.9; 2019: 1.7; 2020: 2.6; 2021: 3.6; 2022: 4.8; 2023 Prel.: 5.7
- End-of-year reserves (US$ millions): see Macroeconomic developments section above.

### Central government finances (Tables 3a–3c highlights)
- Fiscal recommendation: overall fiscal position was balanced in the past two years and non-primary balance improved somewhat (see Macroeconomic developments).
- Total revenue and grants (billions of pula): 2014/15: 55.9; 2015/16: 47.4; 2016/17: 57.4; 2017/18: 58.2; 2018/19: 57.5; 2019/20: 61.6; 2020/21: 66.5; 2021/22: 70.9; 2022/23: 76.2; 2023/24 Prel.: 85.2
- Total expenditure and net lending (billions of pula): 2014/15: 50.6; 2015/16: 54.4; 2016/17: 56.3; 2017/18: 57.9; 2018/19: 65.0; 2019/20: 68.2; 2020/21: 71.8; 2021/22: 75.4; 2022/23: 79.4; 2023/24 Prel.: 85.3
- Overall balance (A, billions of pula): 2014/15: 5.3; 2015/16: -7.0; 2016/17: 1.1; 2017/18: 0.2; 2018/19: -7.5; 2019/20: -6.6; 2020/21: -5.2; 2021/22: -4.5; 2022/23: -3.2; 2023/24 Prel.: -0.1
- Non-mineral primary balance (memorandum, percent of non-mineral GDP): 2014/15: -16.1; 2015/16: -18.1; 2016/17: -17.6; 2017/18: -12.9; 2018/19: -16.7; 2019/20: -16.1; 2020/21: -15.0; 2021/22: -13.6; 2022/23: -12.4; 2023/24 Prel.: -11.8
- Total central government debt (percent of GDP, Table 1): 2014: 22.6; 2015: 23.3; 2016: 21.3; 2017: 19.4; 2018: 18.9; 2019: 18.9; 2020: 18.5; 2021: 17.4; 2022: 15.9; 2023 Prel.: (table lists values)

### Monetary survey (Table 4 highlights)
- Net foreign assets (billions of pula, end of period): 2014: 83.3; 2015: 91.0; 2016: 82.2; 2017: 80.9; 2018: 88.6; 2019: 93.4; 2020: 100.9; 2021: 111.3; 2022: 125.8; 2023 Prel.: 144.9
- Net domestic assets (billions of pula): 2014: -31.0; 2015: -28.3; 2016: -15.4; 2017: -12.3; 2018: -13.2; 2019: -10.6; 2020: -10.3; 2021: -11.6; 2022: -16.2; 2023 Prel.: -23.5
- Monetary Base (end of period, billions of pula): 2014: 11.8; 2015: 14.0; 2016: 14.5; 2017: 12.5; 2018: 13.9; 2019: 15.2; 2020: 16.5; 2021: 18.1; 2022: 19.8; 2023 Prel.: 21.8
- Broad money (M2, end of period, billions of pula): 2014: 55.8; 2015: 66.9; 2016: 70.5; 2017: 72.5; 2018: 79.3; 2019: 86.9; 2020: 94.7; 2021: 104.0; 2022: 114.2; 2023 Prel.: 126.2
- Private sector credit to GDP (percent): 2014: 31.0; 2015: 33.7; 2016: 31.5; 2017: 31.4; 2018: 30.9; 2019: 30.9; 2020: 30.9; 2021: 31.0; 2022: 30.9; 2023 Prel.: 30.6
- Nominal GDP (bn pula, memorandum): 2014: 146; 2015: 146; 2016: 171; 2017: 180; 2018: 195; 2019: 211; 2020: 228; 2021: 247; 2022: 268; 2023 Prel.: 296

### Financial soundness indicators (Table 5 highlights, 2014–2017)
- Capital adequacy (percent): Capital to assets: 2014: 11.3; 2015: 8.5; 2016: 8.4; Mar-17: 9.0; Jun-17: 9.4; Sep-17: 8.7; Dec-17: 8.8
- Regulatory capital to risk-weighted assets: 2014: 18.7; 2015: 20.0; 2016: 19.2; Mar-17: 19.1; Jun-17: 19.1; Sep-17: 18.4; Dec-17: 21.9
- Nonperforming loans to total gross loans (percent): 2014: 3.6; 2015: 3.9; 2016: 4.4; Mar-17: 5.5; Jun-17: 5.2; Sep-17: 5.6; Dec-17: 5.3
- Return on assets (percent): 2014: 2.8; 2015: 2.0; 2016: 2.3; Mar-17: 1.7; Jun-17: 1.7; Sep-17: 1.7; Dec-17: 1.9
- Return on equity (percent): 2014: 19.5; 2015: 17.5; 2016: 20.2; Mar-17: 14.6; Jun-17: 13.5; Sep-17: 14.6; Dec-17: 16.3
- Liquid assets to total assets (percent): 2014: 11.0; 2015: 15.4; 2016: 16.3; Mar-17: 13.6; Jun-17: 13.9; Sep-17: 12.6; Dec-17: 13.4
- Customer deposits to total (non-interbank) loans (percent): 2014: 113.9; 2015: 119.8; 2016: 121.6; Mar-17: 117.6; Jun-17: 118.6; Sep-17: 119.8; Dec-17: 117.3

*Sources: Bloomberg, Botswana’s authorities and IMF staff calculations; Bank of Botswana and IMF staff estimates and projections.*

### Appendix I. Track Record of Economic Policies and Reforms

### Appendix I. Track Record of Economic Policies and Reforms

### Macroeconomic stability and strong fiscal and external buffers
- Objective: Maintain economic stability and strong buffers amidst volatile diamond and SACU revenue.
- Actions/measures:
  - Use countercyclical policies and contain public spending as needed.
- Latest developments:
  - Countercyclical policies have been used to stabilize economic activity and public spending has been moderated as needed to maintain strong buffers.

### Mobilize domestic revenue
- Objective: Mobilize domestic revenue.
- Actions/measures:
  - Pass and implement new Tax Administration Act, strengthen the Large Taxpayers’ Unit.
  - Revisit VAT exemptions and repeal universal filling of the personal income tax, accelerate registration and evaluation of properties.
- Latest developments:
  - The Tax Administration Act draft has been finalized and is expected to be in force by year-end.
  - The LTU capacities are improving in collaboration with AFRITAC South and experts from peer countries.
  - However, no tax policy actions have been implemented thus far.

### Preserve financial stability
- Objective: Preserve financial stability.
- Actions/measures:
  - Assign a clear macroprudential mandate to the BoB, establish crisis resolution framework, finalize implementation of Basel II requirements, and strengthen risk-based supervision of nonbanks.
- Latest developments:
  - The BoB Act has been approved by its Board.
  - The Financial Stability Council has been created but is not yet operational.
  - Basel II requirements have been implemented.
  - The five large banks were asked to submit recovery plans and a methodology to define a systemic bank is being finalized.

### Foster private sector growth and job creation
- Objectives: Lower costs of doing business; Promote financial deepening; Improve education outcomes and skills; Increase focus on enabling sectors with potential comparative advantage.
- Actions/measures:
  - Establish a one-stop shop to start businesses, introduce risk-based inspections to grant construction permits.
  - Broaden the creditor database to include both positive and negative credit data, strengthen the collateral framework, and implement the Making Access Possible Plan to foster financial inclusion.
  - Implement the education strategic plan. Relax restrictions on work permits for foreign workers. Improve coordination with the private sector.
  - Design time-bound strategies, lower costs and remove distortions (e.g. IT connectivity), improve access to electricity and water, formulate time-bound quantitative targets and exit clauses.
- Latest developments:
  - The one-stop service center has been operational since October 2017, but results on its operations are not yet available and progress in other areas has been slow.
  - Progress has been very slow on financial deepening. The authorities are drafting a new regulation for credit bureaus that forces them to collect both positive and negative credit information and the World Bank is assisting with the creation of the collateral registry.
  - Efforts have been made to improve coordination with the private sector, but progress in other areas has been scant.
  - Access to electricity and water improved substantially.
  - The authorities have recently engaged international consultants to assist with strategies to develop the tourism, meat, mining, and financial sectors.

### Improve efficiency of the public sector
- Objectives: Improve public financial management; Enhance efficiency and financial viability of SOEs.
- Actions/measures:
  - Continue the development of the MTEF and implement the 2014 GFSM with a clearer delineation of recurrent and capital expenditures. Strengthen public investment management. Amend the PPADA.
  - Improve financial monitoring and evaluation of SOEs as well as their management, accelerate privatization of key commercial enterprises, review structure of electricity subsidies to set rates in line with commercial criteria, improve management of SOEs.
- Latest developments:
  - Progress has been slow. The authorities are benefiting from TA to enhance the quality of fiscal reports, public investment management, and the capacity of the MFED to plan and implement PFM reforms.
  - Progress is being made. PEEPA is strengthening its capacity to monitor parastatals.
  - The authorities announced their intention to privatize the Botswana Meat Commission, but timelines and modalities have not been set yet.
  - Electricity tariffs were increased by 10 percent in April 2018.

---

### Appendix II. External Stability Assessment

### Introduction and current account
- Botswana’s external position: assessed as stable and consistent with fundamentals and desirable policies.
- Exchange rate framework: based on annual reviews to the rate of crawl and basket weights; basket comprises the SDR and the South African rand, with a 45 percent weight for the latter.
- Current account:
  - A sizable surplus of about 12 percent of GDP was estimated for 2017, somewhat lower than in 2016.
  - A recent revision of balance of payments data is likely to revise these figures downward.
  - Preliminary estimates from STA technical assistance suggest the current account surplus for 2016 and 2017 could be about 4–5 percentage points of GDP lower than previously estimated.
  - The baseline scenario envisages a gradual increase in diamond production and constant diamond prices in real terms (the forecast implies that real diamond prices would remain below their long-term average).
- Drivers and composition:
  - Diamond sales drive sizable CA surpluses; about 90 percent of exports correspond to diamonds sold at international prices.
  - The non-diamond current account deficit would be about 10 percent of GDP.
  - Botswana currently receives about 10 percentage points of GDP in revenues from diamonds.

### Financial account, external financing, and reserves
- Financial account:
  - The financial account has been volatile, mostly due to portfolio investment; foreign direct investment (FDI) has remained mostly stable and positive and is associated with investments in the mining sector (which on average account for about 80 percent of FDI inflows).
  - Gross external financing requirements have gradually decreased over the past five years to about 15 percent of GDP, of which about one-fourth is short-term financing.
  - Net foreign assets have stabilized at about 35 percent of GDP.
- International reserves:
  - At end-2017, international reserves stood at about US$7.5 billion, equivalent to 41 percent of GDP or 13 months of imports.
  - The authorities’ preferred measure of reserve coverage takes the ratio to current year imports of goods and services excluding diamond imports for re-exporting purposes (which would amount to 17 months at end-2017).
  - Under baseline projections, import coverage is expected to increase gradually assuming fiscal and external balances improve over time.
  - For the past twenty years the level of reserves has far exceeded the upper bound of the adequacy range.

### Real effective exchange rate (REER)
- Botswana’s REER has remained broadly stable and appreciated marginally since 2007; it is currently about 2 percent above its 10-year average despite substantial variations in bilateral exchange rates.
- The relative stability is attributed to relatively low capital mobility combined with the BoB’s policy of adjusting the nominal value of the pula in line with expected inflation differentials and basket weights.

### Assessment methodologies and PIH analysis
- Staff employs both a Permanent Income Hypothesis (PIH) model for intergenerational external sustainability and regression-based External Balance Assessment (EBA)-lite models for the CA and REER.
- PIH approach:
  - Rationale: assess whether government saves enough reserves in the next thirty years so that when diamonds are virtually exhausted, proceeds from accumulated savings can replace diamond proceeds.
  - Example calculations and assumptions:
    - Given that Botswana currently receives about 10 percentage points of GDP in revenues from diamonds, the country would have to accumulate assets equivalent to 200 percent of GDP in thirty years such that at a return of about 5 percent per year proceeds from savings would be enough to replace the current level of diamond export revenues.
    - The analysis reports an assumed annual (nominal) return on invested assets of 4.7 percent; the expected trajectory of foreign reserves under the baseline is consistent with a PIH framework.
    - The required rate of return would be about 5.5 percent in practice, since reserves equivalent to about 20 percent of GDP would need to remain invested in short term assets for stabilization purposes.
  - Conclusion: under the PIH approach, the external position appears to be consistent with fundamentals and intergenerational equity.

### EBA-lite results and divergence
- The REER EBA-lite and CA approaches give divergent results for Botswana:
  - REER EBA-lite suggests the REER is consistent with fundamentals and desirable policies; the REER would need to depreciate by 0.6 percent to reach the fitted value of the regression.
  - CA-EBA-lite approach estimates the CA gap to be equivalent to 11.2 percent of GDP: fitted CA of 1.2 percent of GDP versus estimated surplus of 12.3 percent of GDP in 2017.
  - Given an estimated elasticity of the trade balance to changes in the REER of -0.27, the CA approach suggests the REER would need to appreciate by 41 percent for the CA surplus to be reduced to the fitted value.
- Caveats:
  - Both regression-based approaches are less informative for Botswana given commodity dependence and the crawling peg regime.
  - The sizable CA surpluses are mainly the result of diamond sales and not exchange rate misalignments, so the CA approach is not deemed very informative.
  - If the current account data are adjusted as recommended by STA, the estimated undervaluation under the CA approach would fall to about 25 percent.

### Reserve adequacy (IMF metric)
- IMF reserves adequacy metric: a risk-weighted measure of four specific vulnerabilities:
  - (i) export earnings to capture potential losses from terms of trade shocks;
  - (ii) short term debt at remaining maturity (short term debt plus debt service);
  - (iii) portfolio investments plus medium and long-term debt; and
  - (iv) broad money as a proxy for residents’ capital flight.
- For Botswana:
  - The IMF’s metric indicates reserves of 12 to 18 percent of GDP would be adequate (reserves holdings of up to 150 percent of the metric are considered appropriate) compared to the most recent level of 42 percent of GDP.
  - Using a weight of 25 percent for exports (instead of 10 percent) to reflect dependence on volatile diamond receipts, the adequacy range would increase to 18–25 percent of GDP.
  - Thus, the current level of reserves would exceed by 68 percent the upper bound of the estimated adequate range.

*Source: IMF staff estimates and Botswana authorities as presented in the Appendix I and Appendix II of the provided document.*

### 12.      Foreign reserves are under the control of the Bank of Botswana ―with about

### 12.      Foreign reserves are under the control of the Bank of Botswana ―with about

### Reserve composition and operational framework
- Two-thirds of foreign reserves are kept in a sovereign wealth fund (the Pula Fund) and one-third in a “liquidity” portfolio.
- Within the Pula Fund, one-third is owned by the BoB and two-thirds by the government (kept separately in a “Government Investment Account” held at the BoB in domestic currency).
- Botswana’s pula is pegged to a basket of currencies that comprises the South Africa’s rand and the SDR (with a 45 percent weight for the former). The operational details are closer to a fixed exchange rate regime than to a flexible exchange rate regime.
- Staff considers that a weight of 25 percent for exports could be appropriately used to reflect volatility in diamond prices given diamonds lack futures prices and past volatility (notably export decreases in 2009 and 2015).
- The Liquidity Portfolio covers six months of non-diamond imports. Its most recent level is by itself adequate according to the IMF’s metric.

### Reserve adequacy assessment and implications
- The REER is consistent with fundamentals and foreign exchange reserves are adequate.
- Given the volatility of diamond revenues and of SACU receipts, the authorities should continue implementing prudent policies and maintaining high reserve buffers.

### Conclusions (from the reserve assessment)
- Botswana’s external balance has improved since 2009 and is likely to remain in positive territory in the medium-term.
- Recommendation: continue prudent policies and maintain high reserve buffers in light of volatility in diamond revenues and SACU receipts.

### Public debt: current status and baseline projections
- Botswana’s gross public debt (central government only) fell from 21.3 percent of GDP in FY16/17 to 19.4 percent of GDP in FY2017/18.
- Both domestic and external public debt declined in nominal terms, but the share of domestic debt in total debt rose by about 10 percentage points since 2015/16.
- The primary deficit is projected to average 2.1 percent of GDP over FY2018/23, mostly because of constrained mineral revenue.
- The deficit is assumed to be financed by a mix of domestic debt (within the existing limit of 6 percent of GDP for bond issuance per year) and withdrawal of deposits.
- Public debt is projected to remain stable in the next three years and begin to fall in FY 2021/22, reaching 15.9 percent of GDP in 2023/24.
- Throughout the projection period, debt levels remain significantly lower than Botswana’s legislated ceiling of 40 percent of GDP.

### Debt sustainability scenarios and stress tests
- Historical values scenario: If main macro variables remain at their historical 10-year averages, the debt-to-GDP ratio would decline more rapidly than in the baseline in the next 3 years and will increase slightly in the outer years towards 17 percent of GDP.
- Constant primary balance scenario: Holding the primary fiscal balance constant at its 2018/19 level would see public debt reach 24.6 percent of GDP in 2023/24; Botswana would continue to be classified as a lower scrutiny country.
- Contingent liabilities shock:
  - Assumes SOEs default on 50 percent of their total debt with banks (i.e., 2.5 percent of GDP) in 2018.
  - Includes a one standard-deviation shock to growth, deterioration of the primary balance (as per the standard contingent liability shock scenario), and a slight increase in interest rates.
  - Under this scenario, the debt-to-GDP ratio would rise to about 23 percent of GDP in 2020 and decline thereafter.
  - Gross financing needs would reach 7 percent of GDP in 2019 but would be manageable given the country’s large buffers.

### Key public debt indicators (selected figures from Table A3.1 and projections)
- Nominal gross public debt: 20.8 (2016), 21.3 (2017), 19.4 (2018), 18.9 (2019), 18.9 (2020), 18.5 (2021), 17.4 (2022), 15.9 (2023)
- Public gross financing needs (in percent of GDP): 4.0 (2016), 2.3 (2017), 1.8 (2018), 6.5 (2019), 4.7 (2020), 4.3 (2021), 3.7 (2022), 2.8 (2023), 1.6 (2023 cumulative)
- Real GDP growth (in percent): 4.2 (2016), 3.8 (2017), 2.9 (2018), 4.4 (2019), 3.7 (2020), 4.1 (2021), 4.1 (2022), 4.6 (2023), 5.1 (projection shown)
- Primary deficit and revenue/expenditure (selected): Primary deficit series includes 1.7, -0.8, -0.6, 3.7, 3.2, 2.4, 1.9, 1.3, 0.2, 12.8 (table line entries preserved as presented)
- Change in gross public sector debt (cumulative projection): 2.3 (2016), -1.9 (2017), -1.9 (2018), -0.5 (2019), 0.0 (2020), 0.0 (2021), -0.4 (2022), -1.1 (2023), -1.5, -3.5 (later projections/series)

### External debt position and vulnerabilities
- Botswana’s gross public external debt remained small at 13.8 percent of GDP at end FY2017/18.
- Public sector external debt is mainly from multilateral organizations (IBRD and AfDB).
- External debt-to-exports ratio increased from 28.7 percent of exports of goods and services at end-FY2016 to 34.4 percent at end-FY2017, driven entirely by lower exports and projected to be temporary.
- In the medium-term, improvements in terms of trade and fiscal consolidation are projected to reduce the external debt-to-exports ratio to about 17 percent.
- Alternative scenarios (historical averages, exchange rate shock, interest rate shock, growth shock) suggest external debt-to-GDP remains sustainable. Only a non-interest current account shock would raise the debt ratio to about 24 percent of GDP, still below the 35 percent threshold associated with increased likelihood of a debt correction.

### External debt framework (selected figures from Table A3.2)
- Baseline external debt (percent of GDP): 18.4 (2013), 17.6 (2014), 18.5 (2015), 15.1 (2016), 13.8 (2017), 13.0 (2018), 11.4 (2019), 10.0 (2020), 9.0 (2021), 8.0 (2022), 7.1 (2023)
- External debt-to-exports ratio (in percent): 31.0 (2013), 30.1 (2014), 36.9 (2015), 28.7 (2016), 34.4 (2017), 32.7 (2018), 28.2 (2019), 24.8 (2020), 22.2 (2021), 19.8 (2022), 16.8 (2023)
- Key macro assumptions (selected): Nominal GDP (US dollars) series and real GDP growth series are reported in the table; growth of exports (US dollar terms, in percent) includes 34.3, 7.5, -23.8, 13.7, -15.6, 4.3, 22.4, 9.5, 5.2, 6.9, 6.0, 6.3, 12.9 (as presented).

### Risk Assessment Matrix — selected risks, likelihoods, impacts, and policy responses
- Rising protectionism and retreat from multilateralism
  - Likelihood / Horizon: High / ST, MT
  - Expected impact: High / ST, MT — lower demand for diamonds and diamond prices; increased financial volatility
  - Policy response: Allow for exchange rate adjustments, use buffers to support demand, and accelerate reforms to deregulate and liberalize the business environment
- Weaker-than-expected global growth
  - Likelihood / Horizon: Medium / MT
  - Expected impact: Medium / MT — somewhat negative impact on diamond prices and exports, and on growth and external and fiscal positions
  - Policy response: Apply countercyclical fiscal and monetary policies and accelerate reforms to mobilize revenue and promote private sector growth
- Lack of medium-term fiscal adjustment in Botswana
  - Likelihood / Horizon: Medium / MT
  - Expected impact: High / MT — spending pressures post-2019 elections could lead to protracted deficits, increases in public debt and erosion of reserve buffers
  - Policy response: Advance revenue mobilization measures, reduce subsidies, improve the efficiency of public spending, speed up rationalization of parastatals and privatize money-losing enterprises
- Protracted further decline in SACU revenues
  - Likelihood / Horizon: High / MT
  - Expected impact: Medium / MT — deterioration of fiscal and external balances; manageable short-term given buffers but requires accelerated reforms
  - Policy response: Mobilize domestic revenue, reduce subsidies, and improve the efficiency of public spending
- Disruptions in electricity and water provision
  - Likelihood / Horizon: Low / MT
  - Expected impact: Medium / MT — adverse effect on private sector growth and diversification
  - Policy response: Accelerate plans to increase generation capacity and efficiency, lower cost-tariff gaps, and increase private sector involvement

*International Monetary Fund.*

### Appendix V. Fiscal Incidence and Inequality

### Appendix V. Fiscal Incidence and Inequality

### A. Poverty and Inequality in Botswana
- Historical changes (2002–03 to 2009–10):
  - Poverty headcount reduced from 30.6 percent in 2002–03 to 19.3 percent in 2009–10.
  - Consumption Gini Index fell from 0.65 to 0.61 over the same period.
- Vulnerabilities and human development:
  - 24.1 percent of Botswana’s population is undernourished.
  - 31 percent of children under five years of age are stunted.
- More recent survey findings (preliminary 2015–16 Multi-Topic Household Survey):
  - National poverty estimated to have fallen by 3 percentage points in 2015/16 compared to 2009/10.
  - Poverty increased in cities and towns, remained stable in rural areas, and decreased in urban villages.
  - Consumption Gini index rose from 0.49 to 0.52 during the same period.

### B. Taxation and the Social Benefit System in Botswana: An Overview
- Revenue composition and magnitudes:
  - Southern African Customs Union and diamonds: about 58 percent of tax revenue and 13 percent of GDP.
  - Non-mineral income tax: 26 percent of total tax revenue and 6 percent of GDP.
- Value Added Tax (VAT):
  - VAT rate is 12 percent on standard supplies.
  - VAT collection to GDP fell from about 6 percent in 2008/9 to about 3.5 percent in 2016/17.
- Personal Income Tax (PIT) schedule (Earnings in BWP):
  - 0–36,000 BWP: 0
  - 36,001–72,000 BWP: 0 + 5% over BWP 36,000
  - 72,001–108,000 BWP: 1,800 + 12.5% over BWP 72,000
  - 108,001–144,000 BWP: 6,300 + 18.75% over BWP 108,000
  - 144,001 and over BWP: 13,050 + 25% over BWP 144,000
- Social spending and transfers:
  - Education: about one quarter of total spending; 7.5 percent of GDP (6 percent excluding post-secondary bursaries and overseas training).
    - Only 16.4 percent enroll in tertiary education.
    - Cost-sharing fees introduced in 2006: P300 for junior secondary per year and P450 for senior secondary (exemptions for the extremely poor).
  - Health: Botswana spends 3.5–4 percent of GDP on health; adult HIV prevalence 24 percent.
- Cash and near-cash transfers (totaling 4–4.5 percent of GDP, fully government-funded):
  - Social assistance: about 1.5 percent of GDP (main programs: orphan care, school feeding, other food programs, old age pension). Public works program (Ipelegeng) not included in analysis.
  - Sponsorships and scholarships for tertiary students: cost of 1.3 percent of GDP in 2017/18 (bursaries and low-repayment loans).
- Indirect subsidies:
  - Electricity subsidy reached 1.4 percent of GDP in 2015/16; subsidy equally distributed between households, businesses and the public sector.
  - Village electrification installation subsidy: standard payment of BWP 5,000 to connect to the electricity grid irrespective of location; cost approximately BWP 262 million per annum, funded through a universal electricity levy of 5 thebe per kilowatt hour consumed.
  - A stepped two-block tariff structure maintained for Domestic and Small Business customers.

### C. Fiscal Incidence Analysis: Concepts and Methodology
- Methodology:
  - Uses the CEQ assessment tool to quantify impact of taxes, social spending, and subsidies on income distribution and poverty.
  - Constructs pre-fiscal (market) and post-fiscal incomes to trace redistributive impacts.
  - Tool follows an “accounting approach”; does not capture behavioral responses or general equilibrium effects.
- Data and allocation:
  - Uses 2009/10 Botswana Core Welfare Indicators Survey (BCWIS).
  - Subsidies allocated based on BCWIS spending patterns; some imputation applied for cash transfer program based on districts covered and program requirements.
- Caveats:
  - 2009/10 corresponds to a year of fiscal stimulus which could amplify fiscal incidence findings.
  - BCWIS underreports household consumption by 36 percent compared to national accounts and underreports household income tax by 42 percent compared to income tax receipts.
  - Analysis cannot capture mineral revenues, corporate income tax, and public goods without identifiable beneficiaries.

### D. Results — Overall Impact of Fiscal Policy on Poverty and Inequality
- National poverty and Gini impacts (various income concepts; Market Income + Pensions metrics shown):
  - Market Income: Gini 0.639; Headcount 0.239; Poverty Gap 0.100
  - Market Income + Pensions: Gini 0.636; Headcount 0.236; Poverty Gap 0.096
  - Net Market Income: Gini 0.628; Headcount 0.238; Poverty Gap 0.098
  - Gross Income: Gini 0.615; Headcount 0.191; Poverty Gap 0.061
  - Disposable Income: Gini 0.605; Headcount 0.193; Poverty Gap 0.062
  - Consumable Income: Gini 0.604; Headcount 0.211; Poverty Gap 0.070
  - Final Income: Gini 0.534; Headcount 0.053; Poverty Gap 0.013
- Key aggregate findings:
  - Poverty headcount falls from about 24 percent for market income to 21 percent in the post-fiscal income and 5 percent for final income.
  - Income Gini index declines by 10 percentage points after accounting for fiscal policy impact, to 0.53.
  - Two-thirds of gains in poverty and inequality reduction are attributed to education and health (in-kind transfers).
  - Poverty headcount reduction ranges across regions from 6 percentage points in Gaborone to 25 percentage points in the South West.

### E. Impact of Individual Components (summary from fiscal incidence table)
- Interpretation note: Marginal effects reported are in percentage points; CEQ multiplies small changes by 100 so a value of “+1” corresponds to one percentage point decrease in the Gini or headcount.
- Taxes / Expenditures (Size as share of Market Income plus Pensions; Concentration Coefficient; Marginal Effect, Gini; Marginal Effect, Poverty Headcount):
  - Direct Taxes: Size 0.049; Concentration 0.844; Marginal Effect, Gini 0.887; Marginal Effect, Poverty Headcount -0.206
  - Wage Income Tax: same as Direct Taxes.
  - Indirect Taxes: Size 0.064; Concentration 0.623; Marginal Effect, Gini -0.128; Marginal Effect, Poverty Headcount -2.630
  - VAT: Size 0.063; Concentration 0.621; Marginal Effect, Gini -0.138; Marginal Effect, Poverty Headcount -2.630
  - Fuel Levy: Size 0.001; Concentration 0.769; Marginal Effect, Gini 0.010; Marginal Effect, Poverty Headcount 0.000
  - Pensions (aggregate): Size 0.012; Concentration 0.735; Marginal Effect, Gini 0.083; Marginal Effect, Poverty Headcount 0.390
  - Direct Transfers (aggregate): Size 0.035; Concentration -0.152; Marginal Effect, Gini 2.158; Marginal Effect, Poverty Headcount 4.490
    - Old Age Pension: Size 0.006; Concentration -0.112; Marginal Effect, Gini 0.423; Marginal Effect, Poverty Headcount 0.723
    - In-kind Food Aid: Size 0.009; Concentration -0.238; Marginal Effect, Gini 0.746; Marginal Effect, Poverty Headcount 1.549
    - Cash Aid: Size 0.001; Concentration -0.253; Marginal Effect, Gini 0.077; Marginal Effect, Poverty Headcount 0.219
    - Destitute Aid: Size 0.000; Concentration -0.275; Marginal Effect, Gini 0.023; Marginal Effect, Poverty Headcount 0.066
    - School Allowances: Size 0.008; Concentration -0.200; Marginal Effect, Gini 0.243; Marginal Effect, Poverty Headcount 0.494
    - School Meals: Size 0.011; Concentration -0.052; Marginal Effect, Gini 0.714; Marginal Effect, Poverty Headcount 1.551
  - Indirect Subsidies:
    - Electricity: Size 0.006; Concentration 0.523; Marginal Effect, Gini 0.057; Marginal Effect, Poverty Headcount 0.241
    - Education (aggregate): Size 0.222; Concentration 0.049; Marginal Effect, Gini 7.020; Marginal Effect, Poverty Headcount 15.382
      - Primary: Size 0.048; Concentration -0.193; Marginal Effect, Gini 3.599; Marginal Effect, Poverty Headcount 9.193
      - Secondary: Size 0.095; Concentration -0.020; Marginal Effect, Gini 4.388; Marginal Effect, Poverty Headcount 8.790
      - Vocational/Tertiary: Size 0.033; Concentration 0.260; Marginal Effect, Gini 0.306; Marginal Effect, Poverty Headcount 0.888
      - University: Size 0.045; Concentration 0.294; Marginal Effect, Gini -0.365; Marginal Effect, Poverty Headcount 0.380
    - Health (aggregate): Size 0.033; Concentration -0.004; Marginal Effect, Gini 0.843; Marginal Effect, Poverty Headcount 1.759
      - In-patient Care: Size 0.025; Concentration 0.006; Marginal Effect, Gini 0.356; Marginal Effect, Poverty Headcount 0.610
      - Out-patient care, hospital: Size 0.002; Concentration 0.036; Marginal Effect, Gini 0.118; Marginal Effect, Poverty Headcount 0.315
      - Out-patient care, facility with beds: Size 0.005; Concentration -0.033; Marginal Effect, Gini 0.308; Marginal Effect, Poverty Headcount 0.685
      - Out-patient care, facility w/o beds: Size 0.001; Concentration -0.191; Marginal Effect, Gini 0.073; Marginal Effect, Poverty Headcount 0.107
- Aggregate baseline metrics used in table:
  - Headcount Poverty for Market Income + Pensions: 0.236
  - Gini Coefficient for Market Income + Pensions: 0.636

### F. Personal Income Tax, Indirect Taxes, and Transfers — Key Findings
- Personal Income Tax (PIT):
  - PIT is progressive.
  - Wage income tax is highly concentrated among the rich: 70 percent of the tax is paid by the top decile, which receives a little more than 50 percent of pre-fiscal income.
  - Kakwani index for PIT is 0.21 (comparative mentions: 0.3 in Peru, 0.28 in Mexico, 0.25 in Brazil).
  - PIT reduces the Gini index by 0.9 percentage points; its small effect is due to small size (only 5 percent of pre-fiscal income).
- Indirect Taxes (VAT and fuel levy):
  - VAT distributed about neutral relative to pre-fiscal income; Gini declines by 0.1 percentage points compared to disposable income.
  - VAT increases poverty by 2.6 percentage points compared to almost no impact for direct taxes, despite indirect taxes raising about 25 percent more revenue from households than direct taxes.
  - Fuel levy paid more by high-income deciles; size and impact on poverty and inequality negligible.
- Cash and near-cash transfers:
  - Direct transfers collectively reduced poverty headcount by 4.5 percentage points and the Gini index by 2.2 percentage points.
  - Most important contributors: in-kind food program, school feeding programs, and non-contributory old age pension.
  - Targeting efficiency concerns:
    - Coverage: 90 percent of the lowest quintile has access to social assistance.
    - Targeting: about one third of direct transfers goes to the top 40 percent of the population; only 21 percent goes to the poorest decile (compared to 85 percent in South Africa and 43 percent in average country).
    - Large programs (school feeding, old-age pension) are not means-tested; school allowance appears better targeted.
- In-kind transfers (education and health):
  - Large education spending contributed substantially to lower poverty and inequality.
  - Concentration coefficients for primary and secondary education are quite negative, indicating good access across the income distribution.
  - Spending on primary and secondary education each reduced the poverty headcount by 9 percentage points.
  - Impact on inequality stronger for primary education.
  - Spending on tertiary education (universities) is slightly regressive with a marginal effect on the Gini of -0.3 percentage point, implying potential gains from refocusing education spending toward primary level.

### G. Policy-relevant implications and options (as described in the analysis)
- Fiscal policy has played a significant role in alleviating poverty and inequality, primarily through in-kind transfers (education and health) and direct social assistance.
- There is scope to enhance the redistributive impact of fiscal policy through:
  - Better targeting of direct transfers (reducing share of benefits going to top 40 percent and increasing share to poorest decile).
  - Refocusing education spending toward primary level given larger gains in poverty and inequality reduction.
- Revenue-enhancing measures that could be undertaken without aggravating poverty and inequality:
  - Removing VAT exemptions (implied potential given neutral VAT distribution and greater reliance on direct taxes being preferable from an equality perspective).
  - Changes in property taxation could also lower inequality.

*Source: Appendix V. Fiscal Incidence and Inequality (cr18268 - Appendix V. Fiscal Incidence and Inequality).*

### 20.      Health spending also helped reduced poverty and inequality, though less than

### 20. Health spending also helped reduced poverty and inequality, though less than education expenditures.

### Health and electricity spending: distributional effects
- Health spending is "just about equally spread across the population regardless of the type of service," indicating equitable access.
- Exception: out-patient visits at facilities without beds (rural clinics and mobile clinics) cater to a poorer segment of the population.
- Note: "The effect could be larger since health benefits are far more underreported than education."
- Electricity subsidies:
  - "About neutral and have very little impact on poverty."
  - "56 percent of the subsidies go the top quintile as electrification has been low in rural areas."
  - Acknowledgment that this distribution "may have changed since then as access to electricity has improved in recent years, especially in rural areas."
  - Urban electricity consumption may have increased alongside changes in consumption habits.

### Simulations results — Scenarios simulated (contrasted to a baseline)
- Scenario 1. More progressive PIT schedule:
  - "2 more schedules, 30 percent bracket at BWP 216k/year and 35 percent bracket at BWP 324k/year."
- Scenario 2. Removing some VAT exemptions:
  - "private education and health services, sugar and fuel."
- Scenario 3. Shifting education spending to lower levels:
  - "primary 3970->6000 pp, secondary same, non-unit tertiary 45478 ->30000, university 100000 -> 70000."
- Scenario 4–5. Eliminating electricity subsidies:
  - "Scenario 4: Eliminating electricity subsidies totally"
  - "Scenario 5: Eliminating electricity subsidies only for consumption>200Kwh"

### Simulations results — Key quantitative outcomes (from Table A5.6)
- Concentration coefficient (calculated on post-fiscal income, per capita):
  - Scenario 1: 0.706
  - Scenario 2: 0.611
  - Scenario 3: 0.031
- Change in Inequality (Gini coefficient):
  - Scenario 1: 0.0
  - Scenario 2: 0.0
  - Scenario 3: -1.1
  - Scenario 4: 0.1
  - Scenario 5: 0.0
- Change in Poverty (headcount):
  - Scenario 1: 0.0
  - Scenario 2: 0.2
  - Scenario 3: -0.5
  - Scenario 4: 0.1
  - Scenario 5: 0.1
- Change in Poverty (gap):
  - Scenario 1: 0.1
  - Scenario 2: 0.0
  - Scenario 3: -0.1
  - Scenario 4: 0.1
  - Scenario 5: 0.0
- Size of the simulation (net impact on the budget as a percent of ex ante revenues/expenditures):
  - Scenario 1: 3.5%
  - Scenario 2: 7.7%
  - Scenario 3: -0.2%
  - Scenario 4: 36.0%
  - Scenario 5: 9.5%
  - Note: "The impact of elimination of the subsidies is normally 100 percent; 36 percent corresponds to the share of households in total subsidies (government and private sector are also benefiting from the subsidy)"
- Spending effectiveness (increase in the absolute poverty gap (in dollars) divided by the size of the simulation):
  - Scenario 1: 8.0%
  - Scenario 2: 3.4%
  - Scenario 3: n.a.
  - Scenario 4: 3.7%
  - Scenario 5: 4.5%
- Aggregate interpretation from simulations:
  - "All of the revenue enhancing measures —VAT, PIT, and electricity— have only small effects on poverty and inequality, never more than 0.2 percentage points, while generating significant additional income (7.7 percentage points for VAT, 3.5 percentage points for PIT, 36 percentage points or 9.5 percentage points for electricity depending on the scenario)."
  - "The very low values [of spending effectiveness] indicate that there is room for revenue enhancement without appreciable increases in poverty in Botswana should any of these tax policy measures be implemented, and that compensation of these measures through cash transfers will not be costly."
  - Example calculation provided: removal of selected VAT exemptions increases VAT revenue by 7.7 percentage points and increases poverty by 0.2 percentage points; to offset this, authorities need to allocate 3.4 percentage points of the gains (i.e., the 7.7 percentage points) in the form of cash transfers to the poor.

### Policy conclusions and implications (F. Conclusions and Policy Implications)
- General conclusions:
  - "Botswana fiscal policies have contributed to poverty and inequality reduction."
  - "Revisiting the current system with respect to both expenditures and revenues is warranted."
- Efficiency of social spending:
  - "There is room to increase the efficiency of social spending."
  - "Reductions in inequality can often be generated from in-kind transfers and direct transfers."
  - Botswana allocates substantial resources to education, health, and social assistance, but "there seems to be room for efficiency gains through better targeting of some social programs and shifting of education spending to lower levels."
  - "Electricity subsidies could be usefully eliminated and, if needed, replaced by cash transfers to the most vulnerable."
- Tax policy balance:
  - "There is also room to balance equity and efficiency in tax policy."
  - "A greater reliance on direct taxes, in particular property taxation, could enhance equality while mobilizing additional revenue."
  - "While increasing VAT rates is not warranted due to its negative impact on poverty, ... broadening the tax base by streamlining VAT exemptions could provide a boost to revenue collection without a major impact on poverty and inequality."
- Specific takeaways:
  - PIT:
    - "The PIT is progressive; adding brackets for top incomes improves revenue but has insignificant impact on inequality."
    - "For greater equity, property taxation (through wider coverage and higher rates) offers more promise (and there is also a related increase in fiscal revenue)."
    - "Repealing exemptions on capital gains and replacing the progressive rate by a flat proportional rate could also augment revenue without affecting inequality."
  - VAT:
    - "Removing selected VAT exemptions will contribute to revenue collection with a minor impact on poverty and inequality. If needed, cash transfers could be considered to compensate the most vulnerable."
  - Social transfers:
    - "Social transfers contribute to equity and poverty reduction but could be better targeted."
    - Suggested measures: "generalizing the social registry, means-testing, and redesigning some programs to target households instead of individuals."
  - Education and health:
    - "Education and health are progressive and access for the poor is good, except for tertiary education which is not as progressive and contains some distortive aspects as it is heavily subsidized in detriment of vocational training."
    - "Current plans to introduce a cost-sharing formula and means-testing (i.e., fees for the wealthiest) could enhance equity and revenue."
    - "Lower bursaries to tertiary education will also help, together with focusing and devoting resources to vocational training."
  - Electricity subsidies:
    - "Although neutral, electricity subsidies benefit mostly the wealthiest and can be usefully eliminated, especially for large consumers, while mitigating the impact on poverty through cash transfers."

---

### Appendix VI. Economic Diversification

### Background and overall assessment
- "Botswana has tried to diversify its economy for many years, but results have not been up to expectations."
- Non-diamond output share of GDP increased "from 70 to about 80 percent in the past decade," mostly due to trade (which includes diamond marketing activities, hotels, and restaurants).
- "Export diversification remains limited, with diamonds accounting for about 90 percent of goods’ exports."
- Diversification remains a key goal; NDP11 (commenced in 2017) adopts a cluster-based plan. An external consultant identified "beef, tourism, and financial services" as strategic sectors.

### Cattle and beef sector — current status and potential
- Current contribution:
  - "The sector accounts for just about 2 percent of GDP and 1.5 percent of exports" and provides livelihoods to a sizeable share of the rural population.
  - Botswana is "one of the top ten countries in the world with the highest share of cattle per person."
  - Current beef export sales: "US$80 million per year."
  - IMF staff estimate: "beef exports could easily triple overtime from current sales of US$80 million per year if the market were to be liberalized."
- Constraints:
  - State-owned Botswana Meat Commission (BMC) issues:
    - "BMC has a monopoly on exports, pays producers below market prices, and is inefficient and unprofitable, with the government financing its losses and guaranteeing its debt."
    - "Three slaughterhouses ... operate below 50 percent capacity."
    - Elevated production costs due to protection from competition and mandates to subsidize low-quality beef producers from a region affected with foot and mouth disease.
    - Cross-subsidy financed by paying below market prices to higher-quality producers, discouraging production and investment.
  - About "90 percent of the stock of cattle is held in communal farms" following traditional low-productivity methods.
  - Farmers prefer selling to local butchers because "BMC’s price does not compensate for payment delays and additional procedures."
- Recommended reforms:
  - "BMC’s export monopoly needs to be removed to allow new investments and entry to the market."
  - "Authorities should proceed with plans to privatize BMC."
  - Eliminate the cross-subsidy between high-quality and low-quality producers; if subsidizing low-quality producers is necessary (to lower incentives for smuggling from foot and mouth disease zones), do so "through direct transfers from fiscal revenues."
  - Allow exportation of live animals to lower risks and raise profitability; note pricing advantage for young animals in South Africa and the shorter time to sell weaners (1–2 years vs. 2–3 years).
  - Allow beef imports to serve the domestic market so more domestic production can be oriented toward export.
  - To reach export potential, improve offtake rates and increase share of production suitable for chilled EU exports rather than frozen South African sales or domestic consumption; eliminate bureaucratic restrictions to foster private sector participation and competition.

### Tourism — current status and potential
- Current contribution and comparisons:
  - "Tourism contributes about 4 percent to GDP and generates an estimated US$700 million in export earnings."
  - By comparison, Kenya and Tanzania generate "over US$2 billion per year" each.
  - Average number of leisure travelers to Botswana: "300,000 per year," compared to "more than 900,000 for each Kenya and Tanzania."
  - Sector employment: "about 26,000 people at present."
  - Potential: "A comprehensive and well-executed strategy for Botswana could possibly double export receipts and employment."
- Demand composition:
  - Out of "1.9 million visitors in 2016 only 16 percent were leisure travelers."
  - Visitor purposes in 2016: "Business 35 percent; visit family and friends 27 percent; leisure/holiday 16.2 percent" (percentages reflect chart labels).
  - Many visitors are from US, UK, and Europe; a large share come for business or to visit family and friends, mostly from Zimbabwe and South Africa.
- Constraints and recommended policy actions:
  - Supply-side limitations and bureaucratic restrictions must be tackled.
  - Identified constraints: lack of skilled staff in hospitality services; lack of diversified products; challenges in obtaining tourist visas and permits.
  - Recommended measures:
    - "Specialized training ... (e.g., business management of tourism agencies and websites, design and marketing of tours and packages, customer service)."
    - Replace bureaucratic rigidities with a tourism-friendly environment:
      - Improve domestic and international road and air access and prices (e.g., fostering competition in domestic and regional flights).
      - Minimize leakages to capture a larger portion of the industry's value chain (for example by reviewing licensing system for concessions and the value of leased land).
      - Ease restrictions for work permits and visas (e.g., online visa application system, abridged booking procedures, simplified requirements for tourism facilities and services, greater information dissemination).
    - Improvements in airport infrastructure (e.g., Maun airport) and internet connectivity.
  - Geographic/product diversification:
    - "Out of 1.9 million visitors in 2016 only 16 percent were leisure travelers" — current low-leisure share limits longer stays and higher spending.
    - The country has relied on a "low volume–high value strategy" that limits visitor numbers; broadening focus beyond wildlife tourism (e.g., conference and adventure tourism) offers potential without compromising the environment.
    - Value chain study (European Union, 2015) identifies high-potential areas: "Chobe riverfront and Okavango Delta Chobe Enclave, and Chobe National Park." Secondary potential areas: "Tsodillo Hills, the Okavango Pan-Handle, Makgadikgadi Pans National Park, and the Central Kalahari Game Reserve."
- Implementation focus:
  - "A strategy that focuses on training, competition, the ease of regulations, and investments with positive externalities ... is required."

*Source: IMF Botswana country report chapter provided in the supplied content.*

### 10.      The contribution of the financial system to the economy remains limited. Despite some

### 10.      The contribution of the financial system to the economy remains limited. Despite some

### Current financial system outcomes
- Capital market remains underdeveloped despite some deepening in the past decade.
- Access to finance by the corporate sector is limited; non-bank financial intermediation has yet to become a full-fledged alternative.
- Despite excess liquidity in the banking system, credit to the private sector has stalled in recent years (as a share of GDP) and is low compared to peer countries:
  - 30 percent at end-2017, compared to 64 percent in Asia and 52 percent in MENA countries.
- Loans are concentrated on households (60 percent), which are perceived as less risky as most are civil servants.
- Low credit to the corporate sector stems from:
  - insufficient information on the creditworthiness of borrowers;
  - lack of a collateral registry system to support loan contracts;
  - financial illiteracy in segments of the population.
- Addressing these challenges alongside other reforms to improve the business environment would foster credit growth.

### Policy priorities to improve resilience and deepen the financial system
- Strengthen legislation underpinning credit bureaus, set up a credit report database, and establish a collateral registry for immovable and movable assets with online access. In case of defaults, lenders should be allowed to enforce securities out of court through collateral agreements.
- Implement a macro-prudential policy function to foster the ability to analyze systemic risks including information from other regulators and undertake the necessary measures (e.g., limits on debt service-to-income ratios) covering all financial institutions, including establishing macro-prudential measures for the whole financial sector by the central bank in coordination with other regulators.
- Develop a framework and a contingency plan for responding to banking problems by revising the Bank of Botswana Act and the Banking Act, including:
  - (i) strengthening of cross-border supervision, and
  - (ii) accelerating the implementation of the Financial Stability Council and the Memorandum of Understanding among the BOB, the MFED, and NBFIRA regarding responsibilities for bank resolution.
- Consolidate a fragmented non-bank financial system to allow the emergence of strong financial investment companies by easing barriers between different capital market activities (securities, asset management, derivatives). Eventually, these new investment banks will develop products and lead to improved financial intermediation.
- Address the recommendations from the recent AML/CFT Mutual Evaluation carried out by the Eastern and Southern Africa Anti-Money Laundering Group.
- Develop mobile payments to foster financial inclusion. Specific priorities:
  - The current cap on daily mobile payments and account balances of P4,000 is low, which, together with high transaction costs, discourage payments.
  - To improve financial inclusion, the priorities are to: (i) gradually increase this ceiling while strengthening supervision of mobile accounts; and (ii) allow interoperability across networks and with bank accounts and other payments mechanisms, all of which would reduce cost for low-income households.

### Long-term objectives and structural reforms for regional relevance
- Authorities’ goal: create an advanced and regionally relevant financial sector building on existing foundations: history of political and economic stability, a well-established legal and institutional framework, and a broadly liberalized capital account.
- Removing impediments to the development of capital markets and promoting cross-border transactions could increase employment and possibly foreign exchange inflows.
- Focus areas:
  - Modernize the national payments system by implementing the new Oversight Policy Framework and addressing gaps in the prudential and supervisory framework of non-bank financial institutions.
  - Improve infrastructure and connectivity, including increasing access and speed of electronic communications. Specific elements:
    - allow real time data from markets to be disseminated timely;
    - have technical systems that allow orders to be electronically routed to/from overseas markets;
    - build up network of correspondent banks and overseas branches;
    - develop the ability to clear and settle trades carried out on foreign markets (and give foreign firms the ability to clear and settle trades executed locally).
  - Adopt the Principles for Financial Market Infrastructures published by CPSS-IOSCO.
  - Strengthen the clearing house to facilitate risk management in derivatives, net offsetting positions, and collect collateral in the event of default.

### Key statistics and specific figures
- Private sector credit: 30 percent at end-2017.
- Peer comparisons: 64 percent in Asia; 52 percent in MENA countries.
- Loan concentration on households: 60 percent.
- Mobile payments cap and account balance ceiling: P4,000.

*Source: INTERNATIONAL MONETARY FUND*

### 4.      The authorities largely agreed with the priorities enumerated above and are

### 4.      The authorities largely agreed with the priorities enumerated above and are

### Authorities’ engagement with the Fund
- The authorities largely agreed with the priorities enumerated above and are appreciative of Fund support.
- They intend to cooperate actively with the Fund regarding:
  - requests;
  - terms of reference for TA activities;
  - participation in training;
  - more involvement in prioritizing activities and their timing;
  - deploying the necessary human resources to ensure traction;
  - monitoring the implementation of recommendations.
- From the areas listed above, the authorities are not yet sure they will need or request assistance from the Fund on tax policy.
- In the other areas, they plan to continue engaging AFRITAC South and IMF’s functional departments in the period ahead.

### Relations with the Fund — membership and accounts (as of June 30, 2018)
- Membership Status: Joined July 24, 1968; Article VIII
- General resources account SDR (million)
  - Quota 197.20 100.0
  - Fund holdings of currency 169.44 85.92
  - Reserve position in Fund 27.77 14.08
- SDR Department SDR (million)
  - Net cumulative allocation 57.43 100.0
  - Holdings 58.70 102.22
- Outstanding Purchases and Loans: None
- Financial Arrangements: None
- Project Obligations to Fund: None
- Implementation of HIPC Initiative: Not Applicable
- Implementation of Multilateral Debt Relief Initiative: Not Applicable
- Implementation of Catastrophe Containment and Relief: Not Applicable
- Exchange Rate Arrangement:
  - The exchange rate of the Botswana Pula is a crawling peg arrangement against a basket of currencies comprising the SRD and the South African Rand.
  - As of June 29, 2018, the exchange rate of the U.S. dollar to the Pula was US$1= P10.39, and that of the South African rand to the Pula was R1=P0.76.
  - As of November 17, 1995, Botswana accepted the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement.
  - The country maintains an exchange rate system free of restrictions in the making of transfers and payments of current account transactions.
- Article IV consultation:
  - Botswana is on a standard 12-month consultation cycle.
  - The last Article IV consultation was concluded by the Executive Board on July 28, 2017.

### IMF Technical Assistance and Workshops: May 2017–June 2018 (departmental activities listed)
- Fiscal Affairs Department: multiple AFRITAC South missions in May 17–Jun 18 on topics including Regional Harmonization; Establishment of industry based segments & capacity; Development of State-Owned Enterprise Performance Monitoring System; Prepare a fiscal risks statements as part of the Budget Options Paper; Develop a risk management framework; Strengthening the Risk Management Program; Chart of Accounts; GFS/PFM TA on Unified budget and accounting classification; Assist BURS in improving VAT compliance; Compliance Risk Management Program (CRM) missions; Joint BURS CRM Tax & Customs; PFM Skills Audit; Regional SEM on strengthening the Adm. & Excises (Offsite); Regional PFM Advisor.
- Legal Department: Jun 17 Fiscal Law follow-up (Income Tax, VAT and Tax Procedures with AFRITAC South); Oct 17 Fiscal Law follow up (Tax Administration, VAT and Income Taxation); Nov 17 Regional Workshop on Legal Aspects of the National Payment System; Apr 17 Financial Markets Law: Payments Regulations (Work at Home).
- Monetary and Capital Markets Department: May 17 Macroprudential Policy; Jun 17 Effective Macroprudential Framework set-up; Jun 17 AFRITAC South National Payment System Development; Jun 17 Macroprudential Policy and Financial Stability; Jul 2017 AFRITAC South Liquidity Management; Jul-Aug 17 Insurance Supervision; Aug 17 Systemic Risk and Financial Stability; Aug 17 Liquidity Management (joint with AFRITAC South); Aug 17 AFRITAC South Central Bank Communication; Jan 18 Macroprudential Policy and Financial Stability; Mar 18 AFRITAC South Implementation of Pillar 2.
- Statistics Department: Oct 17 Government Finance Statistics (EDDI2); Nov 17 Monetary Data Reporting (EDDI2); Apr 18 AFRITAC South Consumer Prices/Producer Price; Jun 18 Balance of Payments Statistics.

### Statistical issues — I. Assessment of Data Adequacy for Surveillance
- General: Data provision has some shortcomings in national accounts, fiscal, monetary, and external sector statistics, but is broadly adequate for surveillance.
- National Accounts:
  - In October 2012, Statistics Botswana (SB) updated the base year of GDP to 2006 and, in 2015, revised the national accounts to include new mines.
  - Areas for further improvements include the coverage of national accounts surveys and the estimation of GDP deflators.
  - TA is provided by the African Development Bank.
- Price Statistics:
  - The monthly consumer price index (CPI) is available on a timely manner on the SB’s website.
  - The index provides breakdowns between urban and rural price data and between prices of tradable and non-tradable goods and services.
  - A re-based CPI was first published in October 2016 with an index reference period of September 2016.
  - The weights are derived from the 2009/10 Botswana Core Welfare Indicator Survey.
  - A Multi-Topic Household Survey was conducted during 2015-16 and will support the upcoming re-basing of the CPI expected in early 2019.
  - Compilation challenges include the eventual inclusion of owner-occupied housing costs in the CPI.
  - The development of producer prices is being assisted by AFRITAC South but progress has been slow.
- Government Finance Statistics (GFS):
  - The Ministry of Finance and Economic Development compiles cash-based quarterly and annual budgetary central government data following the Government Finance Statistics Manual 2014.
  - No balance sheet data or expenditure by classification of functions of government are compiled.
  - No data are compiled for extrabudgetary institutions, consolidated central government, or consolidated general government.
  - Data quality improvements require a breakdown of transfers expense to distinguish grants, subsidies, social benefits, and other expense; and between current and capital outlays in the development budget.
  - Authorities are working on improving data quality and coverage with the development of a revised chart of accounts; they are also expected to broaden the scope of GFS to include local governments and extrabudgetary units.
- Monetary and Financial Statistics (MFS):
  - The Bank of Botswana (BoB) compiles MFS data using standardized report forms consistent with the Monetary and Financial Statistics Manual.
  - The data currently covers the accounts of the central bank and other depository corporations.
  - The BoB is seeking to expand the coverage of MFS to include the operations of other financial corporations such as pension funds, insurance companies, and non-money market funds.
- Financial Sector Surveillance:
  - The BoB compiles and reports to STA quarterly data on financial soundness indicators, which include 12 core and 11 encouraged indicators for deposit-takers.
- External Sector Statistics:
  - Annual balance of payments (BOP) data with a quarterly breakdown is published in the Botswana Financial Statistics and the BoB’s Annual Report in an aggregated format.
  - Preliminary BOP data is disseminated within two months of the end of the reporting period; revised (final) data becomes available after nine months.
  - The BoB compiles and disseminates the annual international investment position (IIP), with quarterly IIP data produced for internal use only.
  - The concepts, structure, and definitions of the BOP and IIP statistics follow the fifth Balance of Payments Statistics Manual (BPM5).
  - Source data are broadly adequate, but the International Transaction Reporting System (ITRS) data is identified as unreliable.
  - Methods for estimating missing data (for example, unrecorded trade), f.o.b. /c.i.f. adjustment factors to import values, and flows from stock data are inadequate.
  - Relocation to Botswana of De Beers’ London sale operations in 2012 eliminated challenges associated with the valuation of exported diamonds.
  - Main causes for large errors and omissions:
    - under coverage of imports and exports of services, as well as dividends paid by companies in the diamond industry;
    - under coverage of investment abroad, both in equity capital and debt securities, of some public and private entities;
    - under coverage of Botswana’s contribution to Southern African Customs Union (SACU) pool.

### Statistical issues — II. Data Standards and Quality
- Botswana has implemented the recommendations of the Enhanced General Data Dissemination System (e-GDDS).
- It disseminates fourteen of the fifteen data categories defined in Table 1 on its National Summary Data Page (NSDP).
- Periodicity and timeliness of data dissemination on the NSDP are largely in accordance with Botswana’s metadata—albeit with some shortcomings, especially for the timeliness of central government gross debt.
- Botswana should continue building capacity to disseminate data on general government operations and external debt.
- Areas for improvement include timeliness and periodicity of central government gross debt and BOP data.
- Its data ROSC was published on March 27, 2007.

### Statistical issues — III. Reporting to the IMF’s Statistics Department
- The BoB reports monetary data for publication in International Financial Statistics using Standardized Report Forms and quarterly FSIs for deposit-takers and real estate markets.
- Annual balance of payments and IIP data are reported to STA.
- The Ministry of Finance reports cash-based budgetary central government data on an annual basis to the IMF’s Government Finance Statistics Yearbook.

### Table of Common Indicators Required for Surveillance (As of June 30, 2018) — selected entries
- Exchange rates: Date of Latest Observation Jun/2018; Date Received 7/1/2018; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D
- International reserve assets and reserve liabilities of the monetary authorities: Date of Latest Observation Jun/2018; Date Received 7/12/2018; Frequency M M M
- Reserve/base money: Jun/2018; 7/12/2018; M M M
- Broad money: Apr/2018; 6/12/2018; M M M
- Central bank balance sheet: Apr/2018; 6/12/2018; M M M
- Consolidated balance sheet of the banking system: May/2018; 7/12/2018; M M M
- Interest rates: May/2018; 6/13/2018; M M M
- Consumer price index: May/2018; 6/14/2018; M M M
- Revenue, expenditure, balance, and composition of financing — budgetary central government: Feb 2018; May 2018; A/Q/M Q Q
- Stocks of central government and central government-guaranteed debt: 2017Q4; May 2018; Q Q Q
- External current account balance: 2017; 6/15/2018; A/Q A A
- Exports and imports of goods: Dec/2017; Jun 2018; M M M
- GDP/GNP: 2018Q1; June 2018; A/Q A/Q A/Q
- Gross external debt: 2017Q4; June 2018; A/Q A A

### Statement by Mr. Maxwell Mkwezalamba, Mr. Abdulqafar Abdullahi, and Mr. Willie Nakunyada on Botswana — August 31, 2018
A. Introduction
- The authorities appreciate the constructive dialogue with staff during the recent Article IV mission, and broadly concur with key policy recommendations.
- The authorities’ steadfast commitment to implementing prudent macroeconomic policies has helped establish a track record of strong growth.
- Botswana remains vulnerable to commodity price shocks.
- Authorities are making determined efforts to promote economic diversification and private sector development, while creating a conducive environment for employment opportunities and reducing income inequalities, consistent with the Eleventh National Development Plan (NDP11).
- The NDP 11 runs from April 2017 to March 2023.
- The new administration remains committed to the accelerated implementation of structural reforms; work is underway to concretize key steps and timelines despite the current political transitional phase.

B. Recent Economic Developments and Outlook
- Economic activity is projected to rebound from 2.4 percent in 2017 to 4.6 percent in 2018.
- The recovery in economic activity was largely underpinned by:
  - a cyclical recovery in diamond demand and production;
  - growth in non-mining production, which benefitted from countercyclical fiscal policy and accommodative monetary policy measures.
- Looking ahead, growth is expected to slightly moderate due to a slower rate of capital accumulation in both the mining and non-mining sectors.
- The successful execution of planned public investment projects, and reforms to improve the business climate and attract foreign capital, are expected to support sustained growth in the near to medium-term.
- Firming diamond demand from the US, China, and India, as well as improved power supply, are expected to strengthen growth prospects.
- Inflationary pressures remain contained by subdued aggregate demand attributed to modest growth in household incomes and moderate increases in credit growth, as well as stabilization of imported inflation.
- Consequently, inflation has stabilized close to the lower end of the medium-term objective range of 3–6 percent.

*Prepared By The African Department in Consultation with the Statistics Department (Botswana staff report for the 2018 Article IV Consultation — informational annex; August 16, 2018).*

### 2017. The Bank of Botswana (BoB), however, stands ready to make appropriate monetary

### cr18268 - 2017. The Bank of Botswana (BoB), however, stands ready to make appropriate monetary

### Macro outlook and external position
- Public debt remains sustainably low at 19 percent of GDP.
- Current account surpluses are expected to persist into the medium-term, mainly driven by rising diamond exports.
- The country is projected to maintain ample foreign exchange reserve buffers.
- The Bank of Botswana (BoB) stands ready to make appropriate monetary policy adjustments should inflationary pressures materialize.

### Fiscal policy
- Authorities aim to improve domestic revenue mobilization through intensified efforts to diversify fiscal revenue sources and broaden the tax base.
- Botswana Unified Revenue Service (BURS) efforts to improve tax administration and strengthen capacity in the Large Tax Payers Unit are expected to generate additional revenue gains.
- Adoption of a Debt Management Strategy for tax arrears by BURS is expected to bear positive results.
- The authorities have drafted the VAT and Income Tax Bills, as well as the Transfer Pricing Regulation Bill; Parliamentary approval for these Bills is expected in the current FY2018/19.
- Ultimate objective: achieve a balanced budget and eventually return to surpluses within the period of the NDP11.
- Expenditure management: strict adherence to fiscal rules outlined in the NDP11; prioritization of investment and social expenditures; alignment of budgetary allocations with implementation capacity of line ministries.
- Authorities are working on modalities to better target social transfer programs, eliminate overlaps, and improve equity.
- Public Financial Management (PFM) reforms focused on strengthening the Medium-Term Expenditure Framework (MTEF) and implementing the new chart of accounts.
- Integration of special funds to improve governance: bulk of special accounts already migrated to the BoB.
- Progress made in strengthening project planning, appraisal, and monitoring, consistent with the Public Investment Management Assessment (PIMA).
- Further technical assistance from the IMF and the World Bank is expected to help overcome capacity shortfalls slowing PFM reforms.

### Financial sector policies and stability
- The financial sector remains profitable, liquid, and compliant with regulatory and prudential requirements.
- Recent shocks: closure of the Bamangwato Concessions Limited (BCL) nickel and copper mine in the last quarter of 2016 and expected restructuring of parastatals have elevated credit risks.
- Non-performing loans (NPLs) deteriorated from 4.9 percent in 2016 to 5.3 percent in 2017.
- Despite the NPL increase, the banking sector remains adequately capitalized.
- Ongoing work to finalize new regulation guiding information gathering by credit bureaus is expected to help banks strengthen credit assessments and improve asset quality.
- Authorities advancing efforts to strengthen institutional capacity and address shortfalls in the anti-money laundering and combating the financing of terrorism (AML/CFT) framework, in line with the recommendations of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG).
- Implementation advances on relevant aspects of Basel III, particularly with respect to the treatment of capital.
- Establishment of the Financial Stability Council (FSC) to improve information sharing and coordination of supervision of banks and non-bank financial institutions (NBFIs).
- Reviews being finalized of the BoB Act to strengthen central bank governance, and the Banking Act to support modernization, including development of a crisis resolution framework.
- Leveraging Fund TA, the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) is expected to intensify efforts to adopt a risk-based supervisory approach.
- Authorities recognize the need to deepen financial markets to help reverse portfolio investment outflows and promote interbank market activity; volume and frequency of bond issuances remain conditioned on government financing requirements and the need to preserve debt sustainability.
- Authorities are balancing objectives of increasing market activity for government securities with mitigating potential crowding-out effects.

### Structural reforms and diversification
- Accelerated implementation of structural reforms aims to promote economic diversification, create employment, and raise growth potential under the Economic Diversification Drive (EDD).
- Plans to establish hubs, clusters, and economic zones to support diversification in prioritized sectors, including beef, tourism, financial services, mining, and diamond beneficiation.
- Cluster development initiative expected to transform Small and Micro-Sized Enterprises into new engines of growth.
- Tourism strategy: preserve high-value low-volume tourist sites in the Okavango Delta and Chobe region while ensuring environmental sustainability to retain World Heritage Status; extend tourism products to areas surrounding diamond mining fields, the broader Kalahari, and numerous agri-tourism sites.
- Privatization and commercialization prioritized for loss-making parastatals; the Public Enterprises Evaluation and Privatization Agency (PEEPA) has identified entities for privatization, commercialization, and potential merging.
- Government decision to privatize the Botswana Meat Commission (BMC) and deregulate the beef sector to allow private sector participation.
- Establishment of a dedicated Public Private Partnership (PPP) unit within the Ministry of Finance and Economic Development (MFED); regulatory framework for PPPs finalized and broadened to cover parastatals and local authorities.
- To date, 16 PPP projects have been identified, and feasibility studies have been completed for 10 projects and assessed to proceed to the next phase.
- Human Resources Development Council (HRDC) facilitating engagement between industry and education and training providers to bridge skills mismatches; internships, industrial attachment, and management trainee programs expanding; education providers adjusting curricula.
- Authorities committed to change immigration laws and relax visa requirements to allow importation of specialized skills to improve productivity and catalyze knowledge transfer.
- Business environment reforms under the Doing Business Reforms Roadmap: improving electronic filing and payment of taxes; establishing an online customs management system and the One Stop Centre (OSC) at the Botswana Investment and Trade Centre (BITC) in 2017 to reduce turn-around time in registering new businesses.
- A Regulatory Impact Assessment Strategy was adopted in 2017 to reduce administrative burden and improve investor confidence.

### Conclusion and policy outlook
- Authorities remain committed to accelerating implementation of economic reforms to unleash the country’s growth potential.
- Continued sustainment of prudent macroeconomic policies and sound governance practices have supported inclusive growth and narrowed income inequalities.
- Renewed commitment by the new administration to decisively implement bold measures is expected to provide strong impetus to the economic reform agenda and aid efforts to graduate from upper middle to high income status.
- Authorities look forward to continued Fund engagement and further technical assistance to help advance their reform agenda.

*IMF staff report content as provided.*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18268.pdf_