## 1bwaea2023002 — Real Sector Developments (Botswana) ## Source details **Canonical URL:** [1bwaea2023002 — Real Sector Developments (Botswana)](https://www.imf.org/-/media/files/publications/cr/2023/english/1bwaea2023002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1bwaea2023002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1bwaea2023002.pdf.json) --- ### Context - Goal: reach high-income status by 2036. - Real per capita GDP: grown by one third since the early 2000s; GDP per capita close to $7,000 (current US$). - COVID-19 vaccination: about 80 percent of the population vaccinated by May 2023. - Economic structure: - Diamond mining represents 90 percent of goods exports. - Diamond reserves may be exhausted in two to three decades. - Labor and inequality: - Unemployment rate: 25 percent in 2022. - Income inequality: Gini index among the highest in the world. - Government cash deposits at central bank: declined by over 40 percent of GDP over the past 15 years. ### Recent economic developments — Output, prices, external buffers - Real GDP: - Growth rebounded almost 12 percent in 2021. - Growth was 5.8 percent in 2022. - Long-run average growth: 4 percent. - Recovery drivers in 2021–22: elevated mining production, robust manufacturing and construction. - Inflation: - CPI inflation peak: 14.6 percent in August 2022. - CPI inflation: 4.6 percent in June 2023 (within central bank objective range). - Core inflation (excluding fuel): 4.7 percent in June 2023. - Food inflation: 13 percent in June 2023. - Inflation excluding regulated prices remains stickier; inflation excluding regulated prices was 7.1 percent in June (noted elsewhere). - External buffers and reserves: - Import coverage: 5.9 months of imports in May 2023 (from close to 10 months before the pandemic). - Central bank FX reserves: USD 4.3 billion (5.8 months of imports) at end-2022, down from 6.7 months in 2021. - Gross international reserves at end-2022: US$4.3 billion (US$502 million lower than 2021). - Reserves at end-2022: 21.7 percent of GDP or 5.8 months of imports. - Revaluation losses on foreign bonds and equities held by BoB: about US$480 million in 2022. - BoB portfolio composition: about 80–90 percent in the Pula Fund; remainder in a “liquidity” portfolio. ### Recent economic developments — Fiscal and monetary - Fiscal position: - Budget balance: improved from a 2.4 percent of GDP deficit in FY2021 to a balanced budget in FY2022. - Wage bill ratio fell by 0.9 percent of GDP between FY2021 and FY2022. - Grants and subventions declined by 1.7 percent of GDP. - Non-mining revenue fell by 1.9 percent of GDP. - FY2022 deficit financed primarily through domestic debt issuance and external concessional financing. - Gross debt (excluding guarantees): 18 percent of GDP at end-FY2022. - Government deposits at central bank: drawn down from 50 percent of GDP in 2007 to 6 percent of GDP at end-FY2022. - Monetary policy and interest rates: - Bank of Botswana (BoB) policy rate (MoPR): maintained at 2.65 percent since August 2022. - MoPR was raised by a combined 151 basis points between April and August 2022. - Interbank rate increased from around 1 to 2½ percent in 2022. - Prime lending rate: 6.8 percent in April 2023. - Deposit rates: remained broadly unchanged in 2022. - Comparative tightening: average policy rate increase in 60 EMDEs outside SSA since end-2021 ~450 basis points; Botswana had the smallest policy rate increase among all SSA countries between end-2021 and February 2023. - Exchange rate: - BoB reduced nominal downward crawl rate to 1.5 percent for 2023, from 2.9 percent in previous two years. - As of June 13, 2023: US$1 = P13.19; R1 = P0.72. - REER: appreciated by 1.8 percent in 2022 (IMF measure); REER gap estimated at -13.4 percent in EBA-lite (REER Gap -13.4). ### Assessment of external position - End-2022 external position: assessed as stronger than suggested by fundamentals and desirable policies. - Current account gap estimated at around 3½ percent of GDP (CA Gap 3.6 percent of GDP in EBA-lite), implying REER gap of -13.4 percent. - End-2022 reserves represent 183 percent of the standard ARA metric. - If exports weight increased to 25 percent to reflect diamond volatility, reserves would represent 118 percent of the adjusted ARA metric. - CA outcomes and drivers: - Current account: improved from a -1.4 percent of GDP deficit in 2021 to a 2.9 percent of GDP surplus in 2022. - Total goods exports increased by 1.1 percent of GDP in 2022. - Services trade deficit narrowed from 3.6 percent of GDP in 2021 to 1.7 percent of GDP in 2022. - Income and transfers balance weakened from roughly 6 percent of GDP in 2021 to around 2 percent of GDP in 2022. ### Outlook and risks - Growth projections: - 2023: growth projected to slow to 3.8 percent. - 2024: 4.1 percent. - 2025: 4.3 percent. - 2026–2028: 4.0 percent (each year). - Long-run stabilization at 4 percent over medium term. - Diamond production (millions of carats): 2019: 23.7; 2020: 16.9; 2021: 22.7; 2022: 24.5; 2023: 24.5; 2024: 25.1; 2025: 25.9; 2026: 26.6; 2027: 27.1; 2028: 27.8. - Inflation projections: - Annual inflation projected to halve in 2023, to slightly below 6 percent. - Staff projection: 2023 inflation at 5.9 percent; 2024–2028: 4.7 / 4.5 / 4.5 / 4.5 / 4.5 (average consumer prices). - GDP deflator inflation: 2023: 3.3; 2024: 4.0; 2025: 4.1; 2026: 4.5; 2027: 4.1; 2028–2032: 4.6 (each year). - Fiscal outlook: - Authorities plan a widening of the fiscal deficit in FY2023, before narrowing towards a small surplus by FY2025. - FY2023 higher deficit mainly reflects higher budgeted capital expenditure and lower mineral revenue. - SACU transfers projected to increase by 72 percent compared to FY2022. - FY2024 and FY2025: authorities project to reduce fiscal deficit by about 2½ percent of GDP and move to a small fiscal surplus by reducing wages-to-GDP and transfers (including lower subventions to SOEs); base wages expected to grow below inflation while keeping headcounts unchanged. - Debt outlook and DSA: - Total central government debt (% of GDP): 2019: 21.5; 2020: 23.5; 2021: 22.1; 2022: 20.8; 2023: 21.3; 2024: 20.3; 2025: 18.9; 2026: 18.4; 2027: 18.2; 2028: 17.9. - Baseline public debt projections (percent of GDP): Actual 2022: 18.0; 2023: 18.7; 2024: 18.1; 2025: 17.0; 2026: 16.6; 2027: 16.7; 2028: 16.5; 2029: 16.0; 2030: 15.4; 2031: 14.7; 2032: 13.9. - DSA risk of sovereign stress: Low (near-term: n/a; medium-term: Low; long-term: Low). - Gross Financing Needs (GFN): 2022: 4.6; 2023: 5.9; 2024: 7.1; 2025: 5.6; 2026: 3.2; 2027: 3.1; 2028: 3.0. - Debt service as percent of GDP (component of GFN): 2022: 5.1; 2023: 4.9; 2024: 7.0; 2025: 7.1; 2026: 4.6. - Long-run scenarios: with historical 10-year averages debt could rise to ~85 percent of GDP by 2050; under a 'natural resources' scenario debt could approach 60 percent of GDP by 2050. - External outlook: - Current account projected to soften in 2023 then rebound in 2024; CA (% of GDP): 2023: 0.8; 2024: 1.5; 2025: 1.1; 2026: 0.6; 2027: 0.6; 2028: 0.5. - FX reserve coverage projected to initially increase then converge towards 5½ months of imports in the medium term (staff projections show months of imports 2023: 6.0; 2024: 6.1; 2025: 5.8; 2026: 5.6; 2027: 5.5; 2028: 5.5). - Key downside risks (selected): - Supply disruptions and demand fluctuations, including competition from synthetic diamonds. - Abrupt global slowdown and global financial tightening leading to capital outflows. - Climate shocks (especially floods) affecting agriculture, mining, and tourism. - Delays in planned fiscal consolidation eroding buffers. - Key upside scenario: - Successful implementation of the authorities’ economic diversification plan could lift medium-term growth prospects. ### Policies to support macroeconomic resilience — Fiscal - Overarching objective: halt decline in buffers and ensure fiscal sustainability amid commodity dependence and declining mineral revenues. - Historical deterioration: - Government deposits at central bank: from 50 percent of GDP in 2007 to 6 percent of GDP at end-FY2022. - Mineral revenue accounts for about 40 percent of government revenue. - Long-term decline in revenue-to-GDP ratio driven by lower SACU transfers and lower mining revenues. - Authorities’ medium-term consolidation plan: - Aim: achieve a small surplus by FY2025. - Assessment: appropriate against traditional sustainability benchmarks; ambitious but realistic by international standards. - Policy path: higher capital expenditure in FY2023, followed by consolidation in FY2024–FY2025 (including lower wage and transfer ratios). - Fiscal levers and recommendations: - Expenditure-side: - Emphasize lowering expenditure-to-GDP ratio, including the wage bill. - Improve project appraisal and selection; strengthen pipeline of quality projects; develop a central information system. - Consider an expenditure rule (e.g., cap on real spending growth) supplemented with a target path for government net financial assets (NFA). - Revenue-side: - Short-term: streamline VAT exemptions; enhance progressivity of personal income tax through additional brackets for higher income earners. - Medium-term: raise the level and change modalities of property taxation. - Fiscal anchors discussed: - Option 1: stabilize net debt at end-FY2022 (net debt at end-FY2022: 12 percent of GDP) → net debt-stabilizing fiscal deficit ≈ 1 percent of GDP (using staff assumptions). - Option 2: build buffers of 8–16 percent of GDP → require fiscal surplus of 0.3 percent (improve net debt by 8 percent of GDP) to 1.4 percent (improve net debt by 16 percent of GDP). - Option 3: Permanent Income Hypothesis (PIH) / stabilizing total wealth — results highly sensitive; examples cited where non-resource primary surplus could range from deficits to surpluses depending on interest-growth differentials (examples include non-resource primary surplus of 2 percent of GDP under specific nominal return assumptions; 3 percent under 2022 TA assumptions). - Timing and risks: - FY2023 fiscal expansion may create undue demand pressures; output gaps close to zero. - Recommendation: tighter fiscal stance in FY2023 would reduce future adjustment needs and enhance credibility. - Fiscal rules: - Authorities considering a revenue split rule (automatic saving of mineral revenue); limitation: such rules do not constrain spending nor the deficit. - Staff recommendation: expenditure rule plus NFA target may be more effective. - Authorities’ proposals: - Considering automatic saving of 40 percent of mineral revenues combined with a deficit rule. - Commitment to reach fiscal surplus in medium term; temporary FY2023 expansion justified by infrastructure needs. ### Policies to support macroeconomic resilience — Monetary and exchange rate - Assessment: monetary policy stance broadly adequate; BoB tightened policy in 2022 and held MoPR at 2.65 percent since August 2022. - Transmission challenges: - Interbank rate does not adequately transmit policy rate due to banks’ reluctance to lend to each other. - Low financial development and low public debt weaken interest rate channel through credit markets. - Wholesale deposit rates and longer-term rates not fully market-determined (under-allocated government security auctions). - Recommendations: - BoB should stand ready to raise rates if inflation risks materialize. - Develop interbank and bond markets to improve transmission. - Calibrate nominal crawl rate in REER targeting regime to support inflation objective rather than compensate inflation differentials. - Modify REER weights to reflect trade patterns more closely. - Exchange rate regime: - Crawling peg arrangement against a weighted basket comprising SDR and South African Rand; authorities continue to review regime appropriateness. - Nominal crawl depreciation rate reduced from -2.9 to -1.5 percent per year in January 2023. ### Policies to support macroeconomic resilience — Financial sector - System soundness (end-2022): - Capital-adequacy ratio: 19.8 percent. - Non-performing loans (NPLs): 3.8 percent of gross loans. - All banks comply with prescribed liquidity ratios. - FSAP and legal framework: - Key elements of Basel III at advanced stage. - Bank of Botswana Amendment Act (BoBAA 2022) and revised Banking Act provide stronger legal basis for stability oversight. - Next steps: operationalize frameworks for emergency liquidity assistance, deposit insurance, bank resolution; expand Financial Stability Council mandate. - Market development recommendations: - Interbank market: encourage repo transactions, build legal framework, transition to Basel III liquidity framework. - Government bond market: improve primary auction transparency, accept market-based pricing, revisit primary dealer agreement, enhance secondary market liquidity. - Financial inclusion and DFS: - Botswana compares favorably to many SSA countries but lags South Africa and Mauritius. - 2023–2028 “Financial Inclusion Roadmap” to be published in 2023. - Policy measures: clarify regulatory framework for DFS, improve interoperability, introduce fast payment services, allow entry of new players. - MSME finance: - Reform DFIs, introduce credit enhancement mechanisms, develop wholesale facilities for on-lending, upgrade regulatory framework for non-bank lenders, implement credit infrastructure reforms. - AML/CFT: - Botswana removed from FATF grey list in October 2021 and EU blacklist in January 2022. - BoB allocating resources to AML/CFT; need to clarify reporting, build capacity, ensure beneficial ownership information; supervisory arrangements for Virtual Asset Service Providers under NBFIRA recommended. ### Structural reforms and diversification - Structural challenges: - Diamonds: almost 90 percent of goods exports and a quarter of GDP. - Manufacturing share declined over past decade. - Public sector dominance: public sector ~40 percent of formal employment and 50 percent of formal sector wages. - Growth not sufficiently inclusive; unemployment and inequality remain high. - Priority reforms: - Accelerate SOE reform agenda; comprehensive analysis of SOE sector and clarify oversight roles. - Improve infrastructure governance and public investment efficiency (PIMA found large gap in infrastructure spending efficiency). - Targeted industrial policy: Special Economic Zones focus, but interventions should be targeted using criteria: 1. Scope for high productivity gains. 2. Extent of forward and backward linkages. 3. Potential for knowledge spillovers. 4. Export orientation and tradability. 5. Labor intensity to absorb labor force. 6. Relatively low skill intensity at the outset while prioritizing skills development. - Trade integration: - Tariffs low (Botswana tariff: 0.8), but NTMs elevated (Botswana NTMs: 93.2) and trade infrastructure index low (Botswana trade infrastructure index: 0.32). - Simulation: Real GDP per capita could increase by 5 percent after 10 years relative to baseline if AfCFTA implemented and trade infrastructure improves to top quartile of UMI countries (assumptions include tariffs reduced by 90 percent and NTMs halved). - Climate and green growth: - Vulnerabilities: drought, floods, water supply quality; climate change likely to exacerbate inequality. - Paris Agreement: signed in 2016; commitment to reduce carbon emissions by 15 percent by 2030. - 2021 Climate Change Policy and action plan developed; IMF Climate-PIMA found climate considerations increasingly reflected in public investment management but initiatives at early stages. - Recommendations: update sectoral strategies and regulations to reflect climate concerns; prioritize climate-resilient infrastructure investment and targeted support for climate-relevant sectors. - Sectoral initiatives: - In-principle sales agreement with De Beers (July): expected to increase diamonds cut and polished domestically. - “Diamonds for Development” Fund: gradual investments totaling Pula 10 billion ($750 million) over next 10 years to support non-mining sectors (agriculture, solar, climate change, tourism). ### Debt consolidation, risk analysis, and scenarios - Baseline debt dynamics: - Public debt projected to decline over medium term with primary surpluses and growth. - Primary deficit (percent of GDP): 2022: -0.5; 2023: 1.2; 2024: 0.3; 2025: -1.3; 2026: -1.2; thereafter around -1.2 to -1.0. - Net Debt (% of GDP) projections: 2019: 5.3; 2020: 15.3; 2021: 12.8; 2022: 11.6; 2023: 13.0; 2024: 13.1; 2025: 11.7; 2026: 10.3; 2027: 9.2; 2028: 8.0. - Risk modules and outputs: - Debt fanchart: Fanchart width reported as "61.90.9 (percent of GDP)" in source; probability of debt non-stabilization reported as "4.60.0 (percent)". - Medium-term indices: Debt fanchart index 1.10; GFN financeability index 5.93; final assessment: Prob. of missed crisis, 2023-2028: 9.1 pct; Prob. of false alarms: 58.0 pct; overall risk signal: Low. - Stress tests: commodity price shock and natural disaster shock show GFN trend downwards and debt path stable or declining. - Long-term scenarios: - Historical-average scenario: debt could rise to ~85 percent of GDP by 2050. - Natural-resources decline scenario: debt could approach 60 percent of GDP by 2050. - Policy implication: accelerate diversification and preserve buffers to mitigate long-term risks. ### Data, capacity development, and institutional reforms - Data adequacy: - Data broadly adequate for surveillance with some shortcomings in national accounts, fiscal, monetary, and external statistics. - National accounts rebased to 2016; PPI coverage expanding. - GFS compiled on cash basis; gaps: no balance sheet data; no consolidated general government; work under way to expand coverage of extrabudgetary units (no timetable). - BoB compiles MFS consistent with manuals; began disseminating IRFCL in June 2023. - Capacity development (CD) priorities and recent TA: - Main TA providers: AFRITAC South, MCM, FAD, STA; LEG and ICD contributions. - Recent TA: PIMA and C-PIMA, local bond market development, fiscal rules, FSAP (June 2022–May 2023). - Planned TA: national account rebasing (FY2024), CPI update, expand PPI, DSA capacity building, MTDS, deposit insurance and resolution frameworks, CBDC feasibility study support. - Authorities have implemented many TA recommendations (monetary policy framework reforms, lending rate corridor, national accounts improvements) but some reforms (fiscal rule) remain unimplemented. ### Staff appraisal and recommendations (summary) - Short- and medium-term outlook: - Growth expected to decelerate by 2 percentage points to 3.8 percent in 2023 due to decline in diamond production and prices; pick-up to 4.1 percent in 2024. - Inflation declined from 14.6 percent (Aug 2022) to 4.6 percent (June 2023) and 1.5 percent (July 2023); projected to remain within BoB objective range from May 2023 onwards. - Policy priorities: - Fiscal: implement planned consolidation to rebuild fiscal and external buffers; consider expenditure rule and NFA target; improve spending efficiency (wages, transfers, public investment management); enhance revenue administration. - Monetary: maintain appropriate stance and stand ready to raise MoPR if inflation risks materialize; improve monetary transmission and market development. - Financial sector: operationalize emergency liquidity assistance, deposit insurance, and bank resolution frameworks; deepen interbank and bond markets; strengthen supervision and crisis preparedness. - Structural: accelerate SOE reform, trade facilitation and integration (including AfCFTA leverage), targeted support to high-productivity export sectors, climate-resilient infrastructure investment, and diversification away from diamonds. - Surveillance recommendation: - Next Article IV consultation: staff recommends standard 12-month cycle. *Source: IMF staff report excerpts from "1. Real Sector Developments" (Content unit 1bwaea2023002).* ### 1. Real Sector Developments ____________________________________________________________________ 21 ### 1. Real Sector Developments ### Context - Botswana aims to reach high-income status by 2036. - Real per capita GDP has grown by one third since the early 2000s; GDP per capita is close to $7,000 (current US$). - The government’s COVID-19 vaccination campaign reached about 80 percent of the population vaccinated by May 2023. - The economy is heavily dependent on diamond mining (representing 90 percent of goods exports); diamond reserves may be exhausted in two to three decades. - Unemployment rate stood at 25 percent in 2022. - Income inequality, as measured by the Gini index, is among the highest in the world. ### Recent Economic Developments — Output and Prices - Real GDP: - Growth rebounded almost 12 percent in 2021. - Growth was 5.8 percent in 2022. - Long-run average growth is 4 percent. - Recovery in 2021–22 was driven by elevated mining production, and robust manufacturing and construction. - Inflation: - CPI inflation peaked at 14.6 percent in August 2022. - CPI inflation fell to 4.6 percent in June 2023, returning to the central bank’s objective range. - Core inflation (excluding fuel) was 4.7 percent in June 2023. - Food inflation was 13 percent in June 2023. - Inflation excluding regulated prices remains stickier. - External buffers and reserves: - Foreign exchange reserves declined, bringing import coverage to 5.9 months of imports in May 2023 (from close to 10 months before the pandemic). - Central bank FX reserves were USD 4.3 billion (5.8 months of imports) at end-2022, down from 6.7 months in 2021. ### Recent Economic Developments — Fiscal and Monetary - Fiscal position: - Budget balance improved from a 2.4 percent of GDP deficit in FY2021 to a balanced budget in FY2022. - The wage bill ratio fell by 0.9 percent of GDP between FY2021 and FY2022. - Grants and subventions declined by 1.7 percent of GDP. - Non-mining revenue fell by 1.9 percent of GDP. - The FY2022 deficit was financed primarily through domestic debt issuance and external concessional financing. - Gross debt (excluding guarantees) reached 18 percent of GDP at end-FY2022. - Monetary policy and interest rates: - Bank of Botswana (BoB) has maintained the policy rate at 2.65 percent since August 2022. - The Monetary Policy Rate (MoPR) was raised by a combined 151 basis points between April and August 2022. - In 2022, the interbank rate increased from around 1 to 2½ percent. - Prime lending rate was 6.8 percent in April 2023. - Deposit rates remained broadly unchanged in 2022. - External sector: - Current account improved from a 1.4 percent of GDP deficit in 2021 to a 2.9 percent of GDP surplus in 2022. - Financial account moved into surplus, supported by large portfolio inflows and a modest recovery in FDI. - BoB reduced the nominal downward crawl rate of the exchange rate to 1.5 percent for 2023, from 2.9 percent in the previous two years. ### Assessment of External Position - The end-2022 external position is assessed as stronger than suggested by fundamentals and desirable policies: - Current account gap estimated at around 3½ percent of GDP (implying a REER gap of -13 percent) because of the strong rebound in diamond exports. - End-2022 reserves represent 183 percent of the ARA metric. ### Key structural observations - Botswana avoided the “resource curse” historically by investing diamond revenues transparently and productively, but fiscal and external buffers have eroded. - Government cash deposits at the central bank have declined by over 40 percent of GDP over the past 15 years. - The non-mining sector is expected to support growth as mining moderates, but the economy remains dominated by the public sector. --- ### Outlook and Risks - Growth projections: - Growth is projected to slow to 3.8 percent in 2023. - Growth expected to rebound in 2024 and 2025, before stabilizing at 4 percent over the medium term. - The 2023 slowdown reflects a decline in diamond production and prices, and weaker global growth. - Inflation projections: - Annual inflation projected to halve in 2023, to slightly below 6 percent. - With inflation projected at 5.9 percent in 2023 and prime lending rate at 6.8 percent (April 2023 level), the ex post real prime rate should turn positive by end-2023; if prime rates remained unchanged next year, the real rate would rise to 2.1 percent in 2024 given lower inflation. - Fiscal outlook: - Authorities plan a widening of the fiscal deficit in FY2023, before narrowing towards a small surplus by FY2025. - The FY2023 higher deficit mainly reflects higher budgeted capital expenditure and lower mineral revenue. - SACU transfers projected to increase by 72 percent compared to FY2022. - In FY2024 and FY2025, authorities project to reduce the fiscal deficit by about 2½ percent of GDP and move to a small fiscal surplus by reducing the ratio of wages to GDP and transfers (including lower subventions to SOEs); base wages are expected to grow below inflation while keeping headcounts unchanged. - Debt outlook and risks: - Debt ratio projected to remain low in the medium term. - The Debt Sustainability Analysis (DSA) assesses sovereign stress risk as low. - Main risks: macroeconomic volatility from uncertain mineral revenues, potential contingent liabilities related to SOEs, weaknesses in budgeting processes, and delays in fiscal consolidation. - Public financial management practices could be weakened by the separation of planning and budgeting functions with creation of the National Planning Commission in 2022; close coordination between NPC and Ministry of Finance will be key. - External outlook: - External position projected to soften over the medium term after a rebound in 2024. - FX reserve coverage ratio projected to initially increase then converge towards 5½ months of imports in the medium term. - Key downside risks (from Annex III): - Supply disruptions and demand fluctuations, including competition from synthetic diamonds. - Abrupt global slowdown and global financial tightening leading to capital outflows. - Climate shocks (especially floods) affecting agriculture, mining, and tourism. - Delays in planned fiscal consolidation eroding buffers. - Key upside scenario: - Successful implementation of the authorities’ economic diversification plan could lift medium-term growth prospects. --- ### Policies to Support Macroeconomic Resilience A. Fiscal Policy: Halting the Decline in Buffers - Historical deterioration: - Government deposits at the central bank drawn down from 50 percent of GDP in 2007 to 6 percent of GDP at end-FY2022. - Long-term decline in revenue-to-GDP ratio driven by lower SACU transfers and lower mining revenues. - Mineral revenue accounts for about 40 percent of government revenue. - Authorities’ medium-term consolidation plan: - Authorities aim to achieve a small surplus by FY2025. - Achieving this target is assessed as appropriate against traditional sustainability benchmarks and is considered ambitious but realistic by international standards. - Stopping the depletion of buffers is critical, given expected depletion of diamond reserves in two to three decades. - Policy emphasis: - Fiscal sustainability is a key consideration due to commodity dependence and declining mineral revenues. - The medium-term budget framework focuses on higher capital expenditure in FY2023 followed by fiscal consolidation measures in FY2024–FY2025 (including lower wage and transfer ratios). *Source: IMF staff report excerpts from "1. Real Sector Developments" (Content unit 1bwaea2023002).* ### 19. The author t es’ emphasis on lowering the expenditure-to-GDP ratio in the medium ### 19. The author t es’ emphasis on lowering the expenditure-to-GDP ratio in the medium term is warranted. ### Fiscal policy: expenditure and efficiency - Finding: Botswana’s public wage bill is large compared to other emerging market economies—both as share of GDP and public expenditure. - Finding: Despite a relatively large stock of public infrastructure, the 2023 PIMA report noted a large gap in infrastructure spending efficiency between Botswana and the most efficient countries with comparable income levels and public capital stock. - Policy levers to generate savings: - Improve project appraisal and selection. - Strengthen the pipeline of quality projects eligible for budget funding. - Develop a central information system. ### Revenue-side options - Context: Botswana’s tax ratio excluding SACU transfers is relatively low at around 13 percent of GDP—in line with SSA countries, but lower than other emerging and developing countries (median of 17 percent of GDP). - Short-term revenue measures: - Streamline VAT exemptions. - Enhance the progressivity of personal income tax through additional brackets for higher income earners. - Medium-term revenue measures: - Raise the level and change the modalities of property taxation. ### Fiscal impulse, timing, and risks - Observation: This year’s fiscal expansion may create undue demand pressures in the short term. - Context: The positive fiscal impulse in FY2023 occurs with the economy back at potential and still-elevated inflation excluding administered prices. - Output gaps: Output gaps based on HP and multivariate filters are close to zero, both for real GDP and non-mining GDP. - Implication: A tighter fiscal stance in FY2023 would reduce future fiscal adjustment needs and enhance the credibility of the authorities’ consolidation plan. - Note on impulse indicators: Impulse indicators are measured as the change with the previous year. Positive impulse means fiscal expansion. ### Fiscal rules and government net financial assets (NFA) - Observation: Authorities are considering a fiscal rule to automatically save a percentage of mineral revenue (revenue split rule). - Limitation: Revenue split rules do not constrain spending nor the deficit; even if 100 percent of the revenues are saved, a country could still borrow to finance higher spending. - Recommendation: An expenditure rule (e.g., a cap on real spending growth) may be more effective at ensuring fiscal sustainability while allowing automatic stabilizers to operate. - Supplement: The expenditure rule could be supplemented with a target path for government net financial assets (NFA). - Footnote context: If the objective is to build additional fiscal buffer against shocks of 8–16 percent of GDP, the authorities could target a zero NFA position in the medium term. ### Authorities’ views on fiscal policy - Agreement: Authorities agreed with staff on the paramount importance of rebuilding fiscal buffers and expressed firm commitment to reach a fiscal surplus in the medium term. - Rationale for FY2023 expansion: They view the temporary fiscal expansion in FY2023 as warranted to support the recovery and address large development gaps in infrastructure. - On fiscal rules: Authorities noted that the revenue split rule combined with a fiscal deficit ceiling would be sufficient to contain spending pressures. - On revenue administration: Authorities emphasized revenue administration reforms under way, including introduction of e-billing for VAT, expansion of VAT to digital services, and strengthening of audits. ### Monetary and exchange rate policy: keeping inflation within the objective range - Assessment: Monetary policy stance is broadly adequate; BoB last tightened the policy rate in August 2022. - Inflation: Headline inflation decelerated quickly; second round effects appear contained as suggested by softening of core inflation. - Projection: Projected decline in international oil and food prices (including from South Africa) combined with positive domestic real interest rates should drive continued disinflation without need for additional monetary tightening under baseline. - Risk: At 7.1 percent in June, inflation excluding regulated prices remains above the objective range, and inflation expectations continue to be elevated. - Concern: Fiscal expansion this year, including higher investment, may hamper the BoB’s disinflationary effort. - Comparative context: Since end-2021, the average policy rate increase in 60 EMDEs outside SSA has been around 450 basis points. Botswana had the smallest policy rate increase among all SSA countries between end-2021 and February 2023. - Recommendation: BoB should stand ready to raise rates if necessary. ### Monetary policy transmission and exchange rate regime - Transmission frictions: - Interbank rate does not adequately transmit the policy rate because banks are reluctant to lend to each other. - Low financial development and low public debt reduce the ability of interest rates to affect activity through credit markets. - Under-allocated government security auctions suggest longer-term rates are managed and do not fully reflect market conditions. - Banks’ wholesale deposit rates are broadly inelastic to the policy rate. - Reforms to consider: - Develop interbank and bond markets (discussed under financial policies). - Calibrate the nominal crawl rate in the REER targeting regime to support the inflation objective rather than to compensate inflation differentials. - Modify REER weights to mirror trade patterns more closely. - Authorities’ view: Broad agreement on orientation of monetary policy; authorities saw risks to inflation as more symmetric and noted improvements in transmission after 2022 reforms. They monitor interest-rate differentials and stand ready to act on capital outflows. ### Financial sector policies: stability, depth, and inclusion - System soundness (end-2022): - Banking sector capital-adequacy ratio: 19.8 percent. - Non-performing loans (NPLs): 3.8 percent of gross loans. - All banks comply with prescribed liquidity ratios. - FSAP: Stress tests found the financial system appeared resilient to a wide range of shocks; Annex V summarizes main FSAP findings and recommendations. - Legal and regulatory progress: - Key elements of the Basel III Framework at advanced stage of implementation. - Bank of Botswana Amendment Act and revised Banking Act provide stronger legal basis for financial stability oversight. - Next steps: establish operational frameworks for emergency liquidity assistance, deposit insurance, and bank resolution; expand Financial Stability Council mandate to include crisis preparedness and management. - Market development recommendations: - Interbank market: - Encourage repo transactions by building bank capacity, designing a robust legal framework, and establishing supporting prudential regulation. - Transition to the Basel III liquidity framework to improve liquidity planning and expand liquid assets usable as collateral. - Government bond market: - Make primary bond auction system more efficient by improving transparency and predictability, accepting market-based pricing, and revisiting the primary dealer agreement. - Enhance secondary market liquidity by expanding the investor base, enforcing quoting and reporting obligations of primary dealers, and improving market infrastructure for trading. - Financial inclusion and DFS: - Botswana compares favorably to many SSA countries but lags South Africa and Mauritius. - 2023–2028 “Financial Inclusion Roadmap” to be published this year to articulate strategy and set targets. - Policy measures: clarify regulatory framework for DFS, improve interoperability, introduce fast payment services, allow entry of new players. - MSME credit constraints: reform DFIs, introduce credit enhancement mechanisms, develop wholesale facilities for on-lending, upgrade regulatory framework for non-bank lenders, and implement credit infrastructure reforms. - AML/CFT progress: - Botswana removed from FATF grey list in October 2021 and EU blacklist of high-risk third countries in January 2022. - BoB allocating additional resources to AML/CFT; implementation requires clarifying reporting requirements, increasing public awareness, building capacity, and ensuring adequate beneficial ownership information. - Need for supervisory arrangements for Virtual Asset Service Providers under NBFIRA. ### Structural reforms: transforming Botswana’s growth model - Problem statement: - Diamonds represent almost 90 percent of goods exports and a quarter of GDP. - Manufacturing share has declined over the past decade. - Public sector dominance: public sector represents 40 percent of formal employment and 50 percent of formal sector wages. - Economic transformation is critical to raising growth potential, enhancing resilience, and reducing unemployment. - Priority reforms: - Accelerate SOE reform agenda and address infrastructure gaps. - Accelerate comprehensive analysis of the SOE sector and clarify oversight roles. - Continue public financial management reforms to improve infrastructure governance. - 2023 budget foresees a large increase in infrastructure expenditure until end-March 2024. - Diversification strategy guidance: - Current strategy centered on Special Economic Zones; industrial policy appears broad and inward-looking with emphasis on low-productivity sectors. - Targeting criteria for interventions: 1. Scope for high productivity gains (ease of absorbing foreign technology, exposure to competition, product sophistication). 2. Extent of forward and backward linkages, especially high content of intermediate inputs. 3. Potential for knowledge spillovers. 4. Export orientation and tradability, potential to integrate into global value chains. 5. Labor intensity to absorb labor force and reduce unemployment. 6. Relatively low skill intensity at the beginning, while prioritizing skills development. *Source: IMF staff report excerpt (Botswana) contained in the provided content unit.* ### 38. There is great potential from trade integration, both within the African region and ### 1bwaea2023002 - 38. There is great potential from trade integration, both within the African region and ### Trade integration: potential and simulation results - Findings: - Tariffs in Botswana are lower than comparator countries, but non-tariff barriers remain elevated, partly reflecting the landlocked country situation and gaps in trade and logistics infrastructure (Text Table 1). - Leveraging platforms such as the African Continental Free Trade Area (AfCFTA), strengthening investment promotion agencies, upgrading infrastructure, and targeting products that complement those of other countries could help Botswana improve its trade performance. - Greater trade integration would support the development of export-oriented industries, including manufacturing, which are critical for stimulating employment. - Simulation (based on IMF (2023) and assumptions described in footnote 17): - Real GDP per capita could increase by 5 percent after 10 years relative to baseline forecasts, provided that the AfCFTA is implemented, and Botswana achieves parity in trade infrastructure with the top quartile of upper-middle income countries. - Footnote 17 assumptions: AfCFTA implementation results in a reduction in tariffs by 90 percent, and a decline in the number of non-tariff measures (NTMs) by half, among African countries. Botswana is also assumed to improve its trade infrastructure towards the top quartile of upper-middle income countries. The elasticity of real GDP per capita to trade openness is derived from Feyer (2019). - Key trade statistics from Text Table 1 (preserved exactly): - Botswana: Tariffs 0.8; NTMs 93.2; Trade infrastructure index 0.32 - SSA, top quartile: Tariffs 4.8; NTMs 110.5; Trade infrastructure index 0.35 - SSA, median: Tariffs 7.6; NTMs 201.5; Trade infrastructure index 0.28 - UMI countries, top quartile: Tariffs 1.4; NTMs 135.7; Trade infrastructure index 0.44 - UMI countries, median: Tariffs 3.5; NTMs 181.6; Trade infrastructure index 0.34 - Notes to table: - 1/ Trade weighted average tariffs, percent. - 2/ Trade weighted average number of Non Tariff Measures, count. - 3/ Trade infrastructure is a meta-indicator that captures quality of roads, ports, railroads, airports, and Logistics Performance Index. The variable is bounded between 0 (worst infrastructure) and 1 (best infrastructure). ### Greener economy and climate considerations - Findings: - Botswana is highly vulnerable to climate change—including from drought, floods, and water supply quality—underscoring the need for a greener and more sustainable growth model. - Climate change is likely to exacerbate inequality by harming subsistence agriculture and reducing access to water and sanitation. - The government signed the Paris Agreement in 2016 and has committed to developing a long-term low carbon development strategy and reducing carbon emissions by 15 percent by 2030. - The authorities formulated main goals and strategies in their 2021 Climate Change Policy, supported by an action plan setting targets for different sectors of the economy. - The recent IMF Climate-PIMA report welcomed ongoing initiatives and found that public investment management showed increasing awareness of climate considerations. - However, initiatives are generally at early stages of implementation and will need to be confirmed by sectoral actions. - Policy recommendations: - Update all sectoral strategies and regulations, including investment plans and building codes, to reflect climate change-related concerns. - Prioritize climate-resilient infrastructure investment and targeted support for climate-relevant sectors. ### Authorities’ views and planned initiatives - Authorities’ perspectives: - The authorities concurred that structural transformation of the economy was critical and highlighted ongoing actions to diversify production patterns. - They noted a new in-principle sales agreement, reached in July between the Government and De Beers, should expand Botswana’s footprint across the diamond value chain by increasing the share of diamonds cut and polished domestically. - The creation of a “Diamonds for Development” Fund, with gradual investments by De Beers totaling Pula 10 billion ($750 million) over the next 10 years, should boost economic diversification by supporting new activities in non-mining sectors like agriculture, solar, climate change, and tourism. ### Other surveillance issues: capacity development and data - Capacity development (CD): - The authorities receive CD in a broad range of areas and have a good track record in implementing proposed reforms—one example being the reform of the monetary policy framework with the new policy rate and corridor. - The relationship with the FSAP team has also been strong. - Future CD should support efforts to build fiscal buffers, enhance public financial management, improve monetary policy transmission, and strengthen financial supervision and regulation. - The authorities are generally in agreement with past Article IV recommendations, although implementation has been slow in some areas (Annex VII). - Data provision: - Data provision is broadly adequate for surveillance, with continued improvements supported by the IMF. - Notable progress: rebasing national accounts estimates to 2016, constructing supply-and-use tables, and compiling monetary statistics for other financial corporations. - Coverage of the PPI is being expanded, although gaps remain. - Staff encourages a gradual transition to the GFSM 2014 framework. - Priority data actions: address GFS data gaps including classification of current and capital expenditures, and expand coverage beyond the budgetary central government to include extrabudgetary units and local governments. ### Staff appraisal: outlook, risks, and policy priorities - Short- and medium-term growth outlook: - After a strong recovery from the Covid pandemic, Botswana is expected to face an economic slowdown this year. - Growth is projected to decelerate by 2 percentage points to 3.8 percent in 2023 due to the decline in diamond production and prices, with the weaker global environment likely to depress other exports. - Growth should pick up over the next two years, although risks to the outlook remain elevated. - The rebound is mainly predicated on higher prices and demand for diamonds. - Downside risks: - Volatility in commodity markets, a global economic slowdown, climate shocks, and delays in reform implementation. - Long-term structural challenges: - Heavy dependence on diamond mining; diamond reserves may be exhausted in two to three decades. - Growth has not been sufficiently inclusive to bring down unemployment and reduce inequality. - The economy remains dominated by the public sector despite efforts to diversify and expand the role of the private sector. - Fiscal and external buffers: - Authorities are facing structural challenges with reduced fiscal and external buffers. - Botswana’s relatively low gross debt-to-GDP ratio masks a large, long-term deterioration in the government’s financial position, with government cash deposits having fallen by over 40 percent of GDP over the past 15 years. - The decline in foreign exchange reserves continued in 2022, bringing the import coverage ratio down to 5.9 months of imports in May 2023, from close to 10 months before the pandemic. - Although the 2022 external position is stronger than implied by fundamentals and desirable policies, current account surpluses are projected to soften over the medium term. - Fiscal policy recommendation: - The authorities’ planned fiscal consolidation is critical to preserve fiscal sustainability and FX reserves. - Fiscal adjustment could be supported by an expenditure rule. - The authorities’ emphasis on lowering the expenditure-to-GDP ratio, including the wage bill, seems appropriate. - Monetary policy recommendation: - Monetary policy stance is broadly appropriate, but the central bank should stand ready to raise the policy rate if inflation risks materialize. - Inflation has declined since August 2022 and is projected to remain within the central bank’s objective range from May 2023 onwards. - The central bank should stand ready to respond if inflation bounces back or FX reserves continue to decline. - Some changes to the exchange rate regime could be contemplated to support competitiveness and to reduce potential frictions between monetary and exchange rate policies. - Financial sector and structural reform priorities: - The financial sector is broadly sound, stable, and resilient. - Further strengthening: operationalize frameworks for emergency liquidity assistance, deposit insurance, and bank resolution. - Deepening the interbank and bond markets would support financial sector development, while improving public financial management and monetary policy transmission. - Supply-side structural reforms are necessary to support diversification and increase the relative size of the private sector, boosting growth potential, resilience to external shocks, and reducing unemployment. - Policy priorities include trade facilitation and integration, SOE reform, more efficient and climate-resilient infrastructure investment, and more targeted support for high-productivity, export-oriented sectors. *Source: IMF staff report excerpt (Botswana).* ### 51. Staff recommends that the next Article IV consultation with Botswana be held on the ### 1bwaea2023002 - 51. Staff recommends that the next Article IV consultation with Botswana be held on the standard 12-month cycle. ### Macroeconomic overview and staff recommendation - Staff recommends that the next Article IV consultation with Botswana be held on the standard 12-month cycle. - Real GDP growth (calendar years): - 2019: 3.0 - 2020: -8.7 - 2021: 11.9 - 2022: 5.8 - 2023: 3.8 - 2024: 4.1 - 2025: 4.3 - 2026: 4.0 - 2027: 4.0 - 2028: 4.0 - Consumer prices (average): 2019: 2.7; 2020: 1.9; 2021: 6.7; 2022: 12.2; 2023: 5.9; 2024–2028: 4.7 / 4.5 / 4.5 / 4.5 / 4.5 (as shown). ### Real sector developments - Recovery continued in 2022 driven mainly by a strong rebound in the mining sector, and also manufacturing and construction. - Contribution to growth: net exports identified as the main contributor to the growth rebound. - Diamond production (millions of carats): - 2019: 23.7 - 2020: 16.9 - 2021: 22.7 - 2022: 24.5 - 2023: 24.5 - 2024: 25.1 - 2025: 25.9 - 2026: 26.6 - 2027: 27.1 - 2028: 27.8 - GDP per capita (US dollars): - 2019: 6,679 - 2020: 5,863 - 2021: 7,239 - 2022: 7,738 - 2023: 7,741 - 2024: 8,013 - 2025: 8,417 - 2026: 8,943 - 2027: 9,446 - 2028: 10,034 - GNI per capita (US dollars): - 2019: 6,329 - 2020: 5,868 - 2021: 7,169 - 2022: 7,515 - 2023: 7,538 - 2024: 7,793 - 2025: 8,188 - 2026: 8,693 - 2027: 9,193 - 2028: 9,761 - Headline CPI peaked in August 2022 and has come down thereafter; recent developments mainly driven by imported fuel prices passed through to transport inflation. - Labor market: youth and overall unemployment remain elevated (figures shown in figures but not numeric in supplied text). ### Fiscal sector developments and projections - Fiscal deficit ratio: - Expected to widen in FY2023 before narrowing over the medium term (graphic statement). - Central government fiscal aggregates (percent of GDP, calendar/fiscal year distinctions noted in source): - Total revenue and grants (% of GDP): - 2019: 28.3 - 2020: 25.6 - 2021: 29.0 - 2022: 28.9 - 2023: 29.8 - 2024: 28.7 - 2025: 28.6 - 2026: 28.4 - 2027: 28.3 - 2028: 28.4 - Mineral revenue (% of GDP): - 2019: 8.2 - 2020: 5.3 - 2021: 10.6 - 2022: 13.2 - 2023: 9.7 - 2024: 9.6 - 2025: 9.8 - 2026: 9.9 - 2027: 9.7 - 2028: 9.6 - Total expenditure and net lending (% of GDP): - 2019: 36.9 - 2020: 36.5 - 2021: 31.4 - 2022: 28.9 - 2023: 31.7 - 2024: 29.7 - 2025: 28.1 - 2026: 27.9 - 2027: 27.8 - 2028: 27.9 - Overall balance (deficit –) (% of GDP): - 2019: -8.6 - 2020: -10.9 - 2021: -2.4 - 2022: 0.0 - 2023: -1.9 - 2024: -1.0 - 2025: 0.5 - 2026: 0.5 - 2027: 0.5 - 2028: 0.5 - Non-mineral primary balance (% of GDP): - 2019: -19.0 - 2020: -18.5 - 2021: -15.9 - 2022: -16.3 - 2023: -13.6 - 2024: -12.5 - 2025: -10.8 - 2026: -10.9 - 2027: -10.6 - 2028: -10.5 - Total central government debt (% of GDP): - 2019: 21.5 - 2020: 23.5 - 2021: 22.1 - 2022: 20.8 - 2023: 21.3 - 2024: 20.3 - 2025: 18.9 - 2026: 18.4 - 2027: 18.2 - 2028: 17.9 - Net Debt (% of GDP): - 2019: 5.3 - 2020: 15.3 - 2021: 12.8 - 2022: 11.6 - 2023: 13.0 - 2024: 13.1 - 2025: 11.7 - 2026: 10.3 - 2027: 9.2 - 2028: 8.0 - Fiscal-year (FY) central government operations (billions of Pula; selected lines): - Total Revenue and Grants (billions of Pula): FY2019: 50.2; FY2020: 46.2; FY2021: 63.4; FY2022: 74.1; FY2023: 82.0; FY2024: 85.7; FY2025: 93.0; FY2026: 100.2; FY2027: 108.3; FY2028: 117.8 - Total Expenditure and Net Lending (billions of Pula): FY2019: 65.4; FY2020: 65.8; FY2021: 68.7; FY2022: 74.1; FY2023: 87.3; FY2024: 88.7; FY2025: 91.3; FY2026: 98.4; FY2027: 106.3; FY2028: 115.9 - Interest (billions of Pula): FY2019: 1.2; FY2020: 1.2; FY2021: 1.2; FY2022: 1.6; FY2023: 2.4; FY2024: 2.7; FY2025: 3.0; FY2026: 3.2; FY2027: 3.5; FY2028: 3.8 - Wages and salaries (billions of Pula): FY2019: 26.3; FY2020: 28.7; FY2021: 29.6; FY2022: 31.8; FY2023: 34.4; FY2024: 35.1; FY2025: 35.6; FY2026: 38.3; FY2027: 41.7; FY2028: 45.3 - GDP (fiscal year; billions of pula): FY2019: 177.4; FY2020: 180.2; FY2021: 218.7; FY2022: 256.3; FY2023: 275.6; FY2024: 298.7; FY2025: 324.6; FY2026: 352.5; FY2027: 382.0; FY2028: 415.6 ### External sector developments and projections - Current account balance (calendar years, US$ millions): - 2019: -1,155 - 2020: -1,548 - 2021: -263 - 2022: 598 - 2023: 172 - 2024: 323 - 2025: 257 - 2026: 158 - 2027: 153 - 2028: 153 - Current account balance (% of GDP): - 2019: -6.9 - 2020: -10.4 - 2021: -1.4 - 2022: 2.9 - 2023: 0.8 - 2024: 1.5 - 2025: 1.1 - 2026: 0.6 - 2027: 0.6 - 2028: 0.5 - Trade balance (US$ millions and percent of GDP): - Trade balance (US$ millions): 2019: -1,066; 2020: -1,968; 2021: -652; 2022: 548; 2023: -515; 2024: -388; 2025: -388; 2026: -434; 2027: -490; 2028: -522 - Trade balance (% of GDP): 2019: -6.4; 2020: -13.2; 2021: -3.5; 2022: 2.7; 2023: -2.5; 2024: -1.8; 2025: -1.7; 2026: -1.7; 2027: -1.8; 2028: -1.8 - Exports, f.o.b. (US$ millions): - 2019: 5,260 - 2020: 4,293 - 2021: 7,425 - 2022: 8,278 - 2023: 7,413 - 2024: 8,196 - 2025: 8,669 - 2026: 9,499 - 2027: 10,039 - 2028: 10,645 - Imports, f.o.b. (US$ millions): - 2019: -6,326 - 2020: -6,260 - 2021: -8,077 - 2022: -7,731 - 2023: -7,929 - 2024: -8,584 - 2025: -9,058 - 2026: -9,934 - 2027: -10,529 - 2028: -11,167 - SACU receipts (US$ millions; component of current transfers and government revenue): - Current transfers / SACU receipts (US$ millions): 2019 current transfers: 1,190; SACU receipts: 1,318 - 2020 current transfers: 1,305; SACU receipts: 1,382 - 2021 current transfers: 1,253; SACU receipts: 1,328 - 2022 current transfers: 988; SACU receipts: 1,132 - 2023 current transfers: 1,537; SACU receipts: 1,645 - 2024 current transfers: 1,582; SACU receipts: 1,695 - 2025 current transfers: 1,570; SACU receipts: 1,692 - 2026 current transfers: 1,636; SACU receipts: 1,767 - 2027 current transfers: 1,742; SACU receipts: 1,882 - 2028 current transfers: 1,878; SACU receipts: 2,029 - Gross official reserves (end of period, US$ millions): - 2019: 6,172 - 2020: 4,944 - 2021: 4,806 - 2022: 4,281 - 2023: 4,800 - 2024: 5,196 - 2025: 5,369 - 2026: 5,516 - 2027: 5,692 - 2028: 5,884 - Months of imports of goods and services: - 2019: 9.8 - 2020: 6.4 - 2021: 6.7 - 2022: 5.8 - 2023: 6.0 - 2024: 6.1 - 2025: 5.8 - 2026: 5.6 - 2027: 5.5 - 2028: 5.5 - Terms of trade (2005=100): - 2019: 143.4 - 2020: 140.6 - 2021: 178.9 - 2022: 161.2 - 2023: 145.5 - 2024: 150.5 - 2025: 150.5 - 2026: 159.1 - 2027: 158.5 - 2028: 156.7 - Annex I assessment (summary): - The 2022 external position is assessed to be stronger than implied by fundamentals and desired policies. - Despite an improvement in the current account, reserves declined in 2022 due to revaluation losses on foreign investments held by the BoB. - Reserves remain above ARA metric adequacy levels. - In the medium term, smaller current account surpluses will result in a small decline in the reserves import coverage ratio. - Going forward, fiscal consolidation and structural reforms to strengthen competitiveness and promote diversification are key to supporting the external position. - Longer-term external position context: current account reached almost 20 percent of GDP in 2006 and 11.5 percent in 2014; since 2015 the current account balance has averaged 0.2 percent of GDP compared with an average of 6 percent between 2000 and 2014. The decline is primarily due to a deterioration of the diamond trade balance (diamond exports broadly unchanged as share of GDP while diamond imports increased), declines in non-diamond commodity and non-commodity exports, weaker tourism receipts, and lower SACU transfers. ### Financial sector and monetary developments - Credit to the private sector (calendar years, percent change): - 2019: 7.1 - 2020: 5.3 - 2021: 5.4 - 2022: 14.7 - 2023: 8.9 - 2024: 8.4 - 2025: 8.7 - 2026: 8.8 - 2027: 8.7 - 2028: 8.7 - Broad money (M2) percent change: - 2019: 8.0 - 2020: 5.9 - 2021: 5.0 - 2022: 12.0 - 2023: 9.7 - 2024: 7.6 - 2025: 8.9 - 2026: 8.4 - 2027: 9.2 - 2028: 9.2 - Monetary base percent change: - 2019: 5.7 - 2020: -3.8 - 2021: -8.8 - 2022: 14.0 - 2023: 9.7 - 2024: 7.6 - 2025: 8.9 - 2026: 8.4 - 2027: 9.2 - 2028: 9.2 - Policy rate: The policy rate has remained unchanged since August 2022 (graphic statement). - Banking sector indicators (graphic statements): - Credit growth bounced back after pandemic deceleration. - Bank liquidity remains adequate. - Banking sector remains well capitalized with low and stable NPLs and declining but sufficient provisions. - Regulatory capital to risk-weighted assets and Tier 1 ratios shown in figures (IMF FSI Database cited). ### Key risks and structural issues highlighted - External vulnerability: long-term deterioration in current account and falling FX reserves driven by changes in diamond trade dynamics and weaker non-diamond exports. - Reserves: decline in 2022 partly due to revaluation losses on foreign investments held by the BoB, though reserves remain above ARA adequacy metrics. - Fiscal: mineral revenues have declined significantly in the past decade due to lower diamond prices, expenditure ratio was relatively stable between FY2011 and FY2020, and government deposits at the BoB have fallen in the past 15 years (graphic statements). - Competitiveness and diversification: structural reforms to strengthen competitiveness and promote diversification flagged as key to support external position. ### Policy emphasis and implications - Fiscal policy: - Fiscal consolidation recommended over the medium term to support external position and reserve coverage (Annex I). - Reducing reliance on mineral revenue and improving non-mineral primary balance are central fiscal priorities (tables show persistent negative non-mineral primary balance). - Structural reforms: - Strengthen competitiveness and promote diversification to reduce vulnerability stemming from diamond sector concentration (Annex I). - External policy and reserves: - Monitor reserve developments and the implications of portfolio flows and revaluation effects on reserve adequacy. *Source: IMF staff estimates and projections as presented in the Botswana country chapter (figures, tables, and Annex I) in the supplied content.* ### 2. The current account recovered to a surplus of 2.9 percent of GDP in 2022, mostly due ### 2. The current account recovered to a surplus of 2.9 percent of GDP in 2022, mostly due ### External accounts: 2022 outcomes - Current account (CA) surplus: 2.9 percent of GDP in 2022. - Total goods exports increased by 1.1 percent of GDP, with both diamond and non-diamond commodities growing strongly. - Services trade deficit narrowed from 3.6 percent of GDP in 2021 to 1.7 percent of GDP in 2022, reflecting continued recovery in travel receipts and other services. - Income and transfers balance weakened from roughly 6 percent of GDP in 2021 to around 2 percent of GDP in 2022, as dividends and reinvested earnings paid to foreign investors moved closer to pre-pandemic levels. - Financial account turned into a surplus of 0.6 percent of GDP in 2022, from a deficit of 2.4 percent of GDP in 2021; drivers include positive net portfolio inflows (likely withdrawals by pension funds to meet local obligations) and a recovery in Foreign Direct Investment (FDI). ### Reserves and valuation effects - Gross international reserves at end-2022: US$4.3 billion (US$502 million lower than 2021). - Reserves equivalent to 21.7 percent of GDP or 5.8 months of imports at end-2022, down from 6.7 months of import coverage in 2021. - Revaluation (market) losses on foreign bonds and equities held by the Bank of Botswana (BoB): about US$480 million in 2022. - In 2021, FX reserves were increased by the IMF SDR allocation of US$274 million, equivalent to roughly 1.5 percent of GDP or 0.4 months of import coverage in that year. - Authorities’ preferred reserve coverage measure (excluding diamond imports for re-exporting) would amount to 7.9 months at end-2022. ### Net international investment position (IIP) and liabilities - Net IIP declined from 31.3 to 25.4 percent of GDP between end-2021 and end-2022, driven equally by falling foreign assets and increasing foreign liabilities. - Foreign assets declined mainly due to lower external portfolio investments by pension funds, declining external FDI, and falling FX reserves at the BoB. - Higher foreign liabilities primarily reflected increased FDI investment into Botswana in 2022. - Foreign assets composition note: FX reserves now account for 30 percent of total foreign assets (compared to 68 percent in 2008). ### Exchange rate developments - Botswana’s real effective exchange rate (REER) appreciated by 1.8 percent in 2022 (IMF measure). - Despite consistent depreciation of the NEER in recent years, the REER appreciated since the Russian invasion of Ukraine, mainly due to high domestic inflation; the real appreciation trend has partially reversed over the past 8 months, in line with declining inflation. - In January 2023, the authorities reduced the nominal crawl depreciation rate of the Pula from -2.9 to -1.5 percent per year, to reflect the smaller projected inflation differential between Botswana and its trading partners. ### Medium-term outlook and projections - Current account expected to weaken in 2023 and strengthen in 2024, in line with global demand for diamonds and other mining exports. - Over the longer term, the CA surplus is projected to decline, reflecting lower diamond trade balances and a weak recovery in non-diamond exports (despite import compression from fiscal consolidation). - Financial account path driven primarily by government external borrowing and repayment schedule: initially significant drawdowns in 2023 followed by amortizations mostly concentrated in 2024–25. - FX reserves coverage expected to converge towards 5½ months of imports by 2028. - Over the medium term, smaller current account surpluses imply a marginal decline in reserves import coverage ratio. ### External position assessment (EBA-lite results) - CA-EBA lite estimate indicates Botswana’s external position is stronger than suggested by fundamentals and desired policies. - CA model key figures for 2022 (in percent of GDP): - CA-Actual: 2.9 - Cyclical contributions (from model): (-) -1.8 - COVID-19 adjustors: 0.5 - Additional temporary/statistical factors: 0.0 - Natural disasters and conflicts: 0.0 - Adjusted CA: 4.2 - CA Norm (from model): 0.6 - Adjusted CA Norm: 0.6 - CA Gap: 3.6 - o/w Relative policy gap: 1.0 - Elasticity: -0.3 - REER Gap (in percent): -13.4 - Interpretation: The methodology suggests the pula is currently undervalued and that the REER would need to appreciate by roughly 13 percent for the CA deficit to be reduced to the norm (table-based result). - Caveats: - The CA balance is highly volatile and mainly driven by diamond trade, which is not sensitive to changes in the real exchange rate. - Excluding diamond trade, the non-diamond trade deficit is estimated around 22 percent of GDP in 2022 (against a 2.7 percent overall trade surplus in 2022), suggesting the pula could in fact be mildly overvalued. - This alternative assessment is supported by the SIP investigating the REER targeting regime and BoB research (Bank of Botswana, 2021). ### Reserves adequacy (ARA methodology and Botswana-specific considerations) - Reserves management: About 80–90 percent kept in the Pula Fund and the remainder in a “liquidity” portfolio (short-term liquidity buffer). - Long-run decline in reserves: from almost 117 percent of GDP in 2000 to 22 percent of GDP in 2022, mainly reflecting falling current account surpluses. - IMF ARA metric: multidimensional, risk-weighted measure encompassing four vulnerability sources: - (i) export earnings (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 (non-residents’ investment drains); - (iv) broad money (proxy for residents’ capital flight). - Risk-weighting for countries with a fixed exchange rate (assumed for Botswana): 30 percent of short-term debt, 20 percent for other liabilities, 10 percent for broad money, and 10 percent for exports. - Additional buffers are suggested for countries with commodity exports that exceed percent of total exports. Botswana’s commodity exports account for percent of exports of goods and services ( percent of goods exports). Staff considers that a weight of 25 percent for exports could appropriately reflect volatility in diamond prices. - Reserves adequacy outcomes: - At end-2022, reserves are adequate at 183 percent of the standard ARA metric (baseline). - If exports weight increased to 25 percent to reflect diamond volatility, reserves would represent 118 percent of the adjusted ARA metric, which remains sufficient. - Longer-term decline in FX reserve coverage is a potential risk to be mitigated by the authorities’ fiscal adjustment plan (see Box AI.1). ### Box AI.1 — Fiscal-balance and FX reserve link (“Twin Deficits”) - Evidence indicates a close connection between the fiscal balance and the balance of payments over the past decade; drawdowns on government balances at the BoB have tracked changes in FX reserves since 2014. - Regression-based estimates: - A 1 percent of GDP fiscal impulse is associated, on average, with a 1.2 percentage point decrease in the reserves-to-GDP ratio. - Authorities’ current fiscal consolidation plans should increase FX reserves by 0.6 percent of GDP (equivalent to roughly a quarter of a month of imports) by the end of the forecast horizon, all else equal. - Projection note: both reserve-to-GDP ratio and import coverage of FX reserves are expected to remain relatively stable over the period, reflecting offsetting effects of lower diamond trade balances and still weak non-diamond exports. - Fiscal adjustment between FY2022 and FY2025 is about 0.5 percent of GDP. ### Debt sustainability and risk assessment highlights - DSA summary: Overall risk of sovereign stress — Low. - Near-term: n/a; Medium-term: Low; Long-term: Low. - Commentary: Medium-term risks low reflecting relatively low debt-to-GDP ratio, size of fiscal consolidation, strength of institutions, and depth of investor pool. Debt projected to decline mainly due to continued strong real GDP growth and primary surpluses. - Main risks: negative shock to commodity revenues or long-term decline in diamond production could put upward pressure on debt issuance; addressing this requires acceleration of diversification reforms. - Liquidity risks: Medium-term liquidity risks assessed as low via GFN Financeability Module; conclusion holds under commodity price shock and natural disaster scenarios. - Fanchart module: Low risk rating due to forecasted fiscal balance improvement. *Source: IMF staff summary of the Botswana chapter (content unit 1bwaea2023002).* ### 5. Debt consolidation across sectors: ### 5. Debt consolidation across sectors: ### Data coverage and reporting - Data coverage is for the general government, but only the central government has authority to borrow. - Intra-government debt holdings data are not available. - Table indicators (coverage flags) show zeros for: Budget. central govt (0), Extra-budget. funds (0), Social security funds (0), State govt. (0), Local govt. (0), Nonfin pub. corp. (0), Central bank (0), Oth. pub. fin. corp (0), Total (0). - Notes: - 1/ CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector. - 2/ Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable. - 3/ IPSGSs = Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities. - 4/ Includes accrual recording, commitment basis, due for payment, etc. - 5/ Nominal value at any moment in time is the amount the debtor owes to the creditor. - 6/ The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity. - 7/ Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date (reference date). Only traded debt securities have observed market values. ### Public debt structure (commentary and indicators) - Commentary: Since 2018, an increasing share of Botswana's debt has been held by domestic banks and other domestic creditors (e.g. pension funds), while the share held by external official creditors has declined. - Commentary: Long-term (i.e. 5+ year maturity) debt initially increases over the medium-term due to higher multilateral borrowing but stabilizes over the medium-term. - Residual maturity: 6. years (as reported). - Currency composition projection (selected years shown in charts): - 2013–2031 series components labeled: Foreign currency, Local currency, Local-linked. - Holder composition projection (selected years shown in charts): - Components labeled: External official creditors, Domestic other creditors, Domestic commercial banks. - Governing law (2022) components: Domestic law, Foreign law ex. multilateral, Multilateral/bilateral. - Instruments and maturity components shown: Debt securities vs Loans; ≤ 1 year, 1-5 years, > 5 years; Marketable debt vs Nonmarketable debt. ### Baseline scenario — public debt and fiscal flows (Percent of GDP unless otherwise) - Public Debt (actual and projections): - Actual 2022: 18.0 - 2023: 18.7 - 2024: 18.1 - 2025: 17.0 - 2026: 16.6 - 2027: 16.7 - 2028: 16.5 - 2029: 16.0 - 2030: 15.4 - 2031: 14.7 - 2032: 13.9 - Change in Public Debt: - 2022: -0.7 - 2023: 0.7 - 2024: -0.6 - 2025: -1.1 - 2026: -0.4 - 2027: 0.0 - 2028: -0.2 - 2029: -0.5 - 2030: -0.6 - 2031: -0.7 - 2032: -0.8 - Contribution of Identified Flows: - 2022: -0.5 - 2023: 0.5 - 2024: -0.6 - 2025: -1.1 - 2026: -0.2 - 2027: 0.0 - 2028: -0.1 - 2029: -0.5 - 2030: -0.6 - 2031: -0.7 - 2032: -0.8 - Primary deficit: - 2022: -0.5 - 2023: 1.2 - 2024: 0.3 - 2025: -1.3 - 2026: -1.2 - 2027: -1.2 - 2028: -1.2 - 2029: -1.0 - 2030: -1.1 - 2031: -1.0 - 2032: -1.0 - Noninterest revenues (percent of GDP): - 2022: 28.7 - 2023: 29.6 - 2024: 28.5 - 2025: 28.5 - 2026: 28.2 - 2027: 28.2 - 2028: 28.2 - 2029: 27.9 - 2030: 27.9 - 2031: 27.9 - 2032: 28.0 - Noninterest expenditures (percent of GDP): - 2022: 28.3 - 2023: 30.8 - 2024: 28.8 - 2025: 27.2 - 2026: 27.0 - 2027: 26.9 - 2028: 27.0 - 2029: 26.9 - 2030: 26.8 - 2031: 26.9 - 2032: 26.9 - Automatic debt dynamics: - 2022: -1.9 - 2023: -0.4 - 2024: -0.4 - 2025: -0.4 - 2026: -0.3 - 2027: -0.3 - 2028: -0.3 - 2029: -0.5 - 2030: -0.5 - 2031: -0.5 - 2032: -0.4 - Real interest rate and relative inflation: - 2022: -1.2 - 2023: 0.3 - 2024: 0.3 - 2025: 0.4 - 2026: 0.3 - 2027: 0.4 - 2028: 0.3 - 2029: 0.1 - 2030: 0.1 - 2031: 0.1 - 2032: 0.1 - Real interest rate: - 2022: -1.6 - 2023: 0.3 - 2024: 0.2 - 2025: 0.2 - 2026: 0.2 - 2027: 0.3 - 2028: 0.2 - 2029: 0.0 - 2030: 0.0 - 2031: 0.0 - 2032: 0.0 - Relative inflation: - 2022: 0.5 - 2023: 0.0 - 2024: 0.1 - 2025: 0.1 - 2026: 0.1 - 2027: 0.1 - 2028: 0.1 - 2029: 0.1 - 2030: 0.1 - 2031: 0.1 - 2032: 0.1 - Real growth rate: - 2022: -1.0 - 2023: -0.7 - 2024: -0.7 - 2025: -0.8 - 2026: -0.7 - 2027: -0.6 - 2028: -0.6 - 2029: n.a. - 2030: -0.6 - 2031: -0.6 - 2032: -0.6 - Other identified flows: - 2022: 1.9 - 2023: -0.4 - 2024: -0.5 - 2025: 0.5 - 2026: 1.3 - 2027: 1.5 - 2028: 1.5 - 2029: 1.1 - 2030: 1.0 - 2031: 0.7 - 2032: 0.7 - (minus) Interest Revenues: - 2022: -0.1 - 2023: -0.2 - 2024: -0.2 - 2025: -0.2 - 2026: -0.2 - 2027: -0.2 - 2028: -0.2 - 2029: -0.2 - 2030: -0.2 - 2031: -0.2 - 2032: -0.2 - Other transactions: - 2022: 2.0 - 2023: -0.2 - 2024: -0.3 - 2025: 0.7 - 2026: 1.5 - 2027: 1.7 - 2028: 1.6 - 2029: 1.2 - 2030: 1.1 - 2031: 0.9 - 2032: 0.8 - Contribution of Residual: - 2022: -0.2 - 2023: 0.3 - 2024: 0.0 - 2025: 0.0 - 2026: -0.1 - 2027: 0.0 - 2028: -0.1 - 2029: 0.0 - 2030: 0.0 - 2031: 0.0 - 2032: 0.0 - Gross Financing Needs (GFN): - 2022: 4.6 - 2023: 5.9 - 2024: 7.1 - 2025: 5.6 - 2026: 3.2 - 2027: 3.1 - 2028: 3.0 - 2029: 2.9 - 2030: 2.8 - 2031: 2.7 - 2032: 2.6 - Of which: debt service: - 2022: 5.1 - 2023: 4.9 - 2024: 7.0 - 2025: 7.1 - 2026: 4.6 - 2027: 4.5 - 2028: 4.4 - 2029: 4.1 - 2030: 4.0 - 2031: 3.9 - 2032: 3.8 - GFN by currency: - Local currency 2022: 4.3; 2023: 4.1; 2024: 6.3; 2025: 6.2; 2026: 4.3; 2027: 4.2; 2028: 4.2; 2029: 3.9; 2030: 3.8; 2031: 3.7; 2032: 3.6 - Foreign currency 2022: 0.8; 2023: 0.8; 2024: 0.7; 2025: 0.8; 2026: 0.3; 2027: 0.2; 2028: 0.2; 2029: 0.2; 2030: 0.2; 2031: 0.2; 2032: 0.2 - Memo: - Real GDP growth (percent): 2022: 5.8; 2023: 3.8; 2024: 4.1; 2025: 4.3; 2026–2032: 4.0 (each year) - Inflation (GDP deflator; percent): 2022: 14.6; 2023: 3.3; 2024: 4.0; 2025: 4.1; 2026: 4.5; 2027: 4.1; 2028–2032: 4.6 (each year) - Nominal GDP growth (percent): 2022: 17.2; 2023: 7.5; 2024: 8.4; 2025: 8.7; 2026: 8.6; 2027: 8.4; 2028–2032: 8.8 (each year) - Effective interest rate (percent): 2022: 4.0; 2023: 5.2; 2024: 5.2; 2025: 5.6; 2026: 5.8; 2027: 5.9; 2028: 6.0; 2029: 4.6; 2030: 4.7; 2031: 4.8; 2032: 4.9 - Commentary on baseline: - Over the past five years, authorities limited the increase in debt by drawing down on cash reserves. - Strong economic recovery helped close the fiscal deficit. - Debt is projected to increase in FY2023 due to higher external borrowing. - Over the medium term, debt is projected to decline as a result of primary surpluses and continued economic growth. - One risk: the primary deficit initially widens in FY2023 before rapidly moving into surplus over the next two years; the two-year change in the primary balance is approximately 2.5 percent of GDP. ### Realism of baseline assumptions and historical context - Forecast track record and comparator assessment: - Commentary: Botswana's adjustment is realistic when measured against international comparators. - The growth outlook underpinning the debt projections is in line with historical averages, including after accounting for growth effects of fiscal consolidation. - Risk: the two-year consolidation implied (about 2.5 percent of GDP) is more ambitious than international standards. - Distributional and percentile references: - 3-year adjustment above 75th percentile (2 ppts of GDP) percentile rank: 58 - 3-year debt reduction above 75th percentile (5.9 ppts of GDP) percentile rank: 54.1 - Bond issuance and marginal interest rate indicators are presented in charts (percent of GDP and percent). ### Medium-term risk analysis (indices, modules, and outcomes) - Debt fanchart module outputs: - Fanchart width: 61.9 0.9 (percent of GDP) — reported as "Fanchart width61.90.9 (percent of GDP)" in source. - Probability of debt non-stabilization: 4.6 0.0 (percent) — reported as "Probability of debt non-4.60.0 stabilization (percent)". - Terminal debt-to-GDP x7.70.2 — reported as "Terminal debt-to-GDP x7.70.2". - Institutions index: Debt fanchart index (DFI) 1.1 - Risk signal: Low (DFI below threshold). - Gross Financing Needs (GFN) module outputs: - Average baseline GFN: 4.7 1.6 (percent of GDP) — reported as "Average baseline GFN4.71.6 (percent of GDP)". - Banks' claims on the general government (pct bank assets): 9.1 2.9 - Change in banks' claims in stress (pct banks' assets): 4.2 1.4 - GFN financeability index (GFI): 5.9 - Risk signal: Low (GFI below threshold). - Medium-term index: - Debt fanchart index 1.10 - GFN financeability index 5.93 - Final assessment: Prob. of missed crisis, 2023-2028, if stress not predicted: 9.1 pct. - Prob. of false alarms, 2023-2028, if stress predicted: 58.0 pct. - Overall risk signal: Low - Commentary: Medium-term tools point to low overall risk due to forecasted improvement of fiscal balance and declining gross financing needs over the medium-term. - Stress tests: Commodity price shock and natural disaster shock applied; under both scenarios, gross financing needs trend downwards and debt path is stable or declining. ### Long-term risk analysis and scenarios - Overall long-run risk indicator: Low. - Under baseline, debt follows long-term downward trend reflecting continued small primary surpluses. - Alternative projection outcomes: - Using historical 10-year averages, debt could rise from around 20 percent to approximately 85 percent of GDP by 2050 — reflecting historically elevated gross financing needs and prior depletion of cash deposits. - Under a 'natural resources' scenario (declining diamond production, lower mineral revenue), debt could approach 60 percent of GDP by 2050. - Commentary: One source of risk is large, lumpy future amortization repayments posing rollover risk. ### Risk Assessment Matrix — Selected global and domestic risks, likelihood, impact, and policy responses - Global risks: - Abrupt global growth slowdown or recession: - Likelihood: Medium - Expected impact: High. May lower demand/prices for diamond and other commodity exports, slow tourism rebound, lower SACU revenues, affect fiscal balances, foreign reserves, and pressure the Pula. - Possible policy response: Apply countercyclical fiscal policy while continuing credible fiscal consolidation; accelerate structural agenda to diversify and enhance competitiveness; consider more flexibility in exchange rate response. - Commodity (oil and food) price volatility: - Likelihood: Medium - Expected impact: Medium. Botswana is an oil and food importer; price volatility could lead to budgetary pressures and aggravate cost-of-living crisis. - Possible policy response: Stand ready to tighten monetary policy cautiously; provide targeted, short-term fiscal support to vulnerable households. - Systemic financial instability from banking turmoil: - Likelihood: Medium - Expected impact: Low. Could prompt investors to reduce exposure to EMDEs; Botswana's external borrowing needs are limited. - Possible policy response: Adapt to tighter financing conditions; continue consolidating public finances, improve domestic revenue mobilization, deepen domestic financial market; ensure effective debt management and financial regulation. - Domestic risks: - Delays in implementing fiscal consolidation and structural reforms: - Likelihood: Medium - Expected impact: Medium. Could undermine fiscal sustainability and macro stability, lower growth, increase dependence on diamonds. - Possible policy response: Define a long-term anchor for fiscal policy; improve spending efficiency and prioritization; accelerate key reforms (SOE reform, digitalization, trade integration). - Extreme weather events: - Likelihood: Medium - Expected impact: Medium. Could disrupt water, agriculture, tourism, mining, increase inflation, deficits, unemployment, and inequality. - Possible policy response: Implement climate change mitigation and adaptation measures; develop local capacity to access climate finance and a pipeline of climate projects. - RAM methodological note: - 1/ Relative likelihood categories: "low" indicates a probability below 1 percent, "medium" between 1 and (blank in source), and "high" between 30 and 50 percent (source text contains truncation). - 2/ Comparison group: emerging markets, commodity exporter, surveillance. ### Annex IV (brief) - Over the coming decade, credibility of fiscal adjustment would be enhanced through clear and transparent medium-term targets. - Annex computes various fiscal benchmarks consistent with fiscal sustainability and insurance against shocks for authorities' fiscal strategy. *Source: IMF staff estimates and projections as presented in the content unit.* ### 2. The calibration of the medium-term adjustment path depends crucially on the choice ### 1bwaea2023002 - 2. The calibration of the medium-term adjustment path depends crucially on the choice ### Fiscal anchors and calibration of the medium-term adjustment path - The fiscal anchor is a stock variable that serves as the reference point for the whole fiscal framework and is used to set the main fiscal targets. - Three alternative anchors considered: - Stabilize net debt at its end-FY2022 value (halt depletion of buffers). - Improve net debt (build additional buffers beyond stabilization). - Stabilize net wealth (including resource wealth) consistent with the Permanent Income Hypothesis (PIH) to maintain overall wealth across generations. - The choice of the anchor and its threshold will impact medium-term fiscal deficit targets and indirectly the expenditure envelopes. ### Option 1 — Stabilizing net debt at end-FY2022 - Objective: stop deterioration of net financial assets observed in the past decade. - Key numbers and assumptions: - Net debt at end-FY2022: 12 percent of GDP. - Assumed real growth: 4 percent. - Assumed inflation: midpoint of objective range of 4.5 percent. - Result: - Net debt-stabilizing fiscal deficit would amount to about 1 percent of GDP. - Note: - Using assumptions from the 2022 IMF TA report (3 percent real growth and 3 percent inflation) would give a fiscal deficit target of 0.7 percent of GDP. ### Option 2 — Building buffers against future fiscal risks - Objective: create a buffer of 10 to 20 percent of non-resource GDP (equivalent to 8 to 16 percent of GDP) to protect the budget against major economic shocks. - Assumptions: same nominal growth assumptions as Option 1 unless otherwise noted. - Required fiscal path over the next 10 years to improve net debt: - Fiscal surplus of 0.3 percent of GDP to improve net debt by 8 percent of GDP. - Fiscal surplus of 1.4 percent of GDP to improve net debt by 16 percent of GDP. - Note: - Using the nominal growth assumption of the 2022 IMF TA report would imply a surplus of 0.4 to 1.4 percent of GDP. ### Option 3 — Permanent Income Hypothesis (PIH) / stabilizing total wealth - Background numbers and assumptions: - 2022 TA report estimate: total wealth of 200 percent of non-mining GDP at end-FY? (source text contains formatting errors for fiscal year reference). - This is described as equivalent to 1 percent of GDP in the source (formatting irregularity preserved). - Results are highly sensitive to assumptions (interest-growth differential, return on financial assets, exchange rate movements) and the policy objective (stabilize wealth in percent of GDP versus real terms). - Examples from the source: - Stabilizing wealth in percent of GDP: - Interest rate-growth differential matters: a positive differential of 1 percent implies a non-resource primary deficit of 1.6 percent of GDP; a negative differential of 1 percent results in a surplus of 1.6 percent of GDP. - Assuming financial assets earn 4 percent (foreign government bonds), Pula depreciates against USD by 6 percent a year, delivering a 10 percent nominal return versus nominal GDP growth of 8.5 percent → positive interest-growth differential of 1.5 percent → non-resource primary surplus of 2 percent of GDP, equivalent to 7 percent surplus for the overall balance (assuming 10 percent of GDP for mineral revenues, and 1 percent of GDP for the interest bill). - Using 2022 TA report assumptions (5 percent real interest rate and 3 percent growth) → non-resource primary surplus of 3 percent of GDP, equivalent to an 8 percent surplus for the overall balance. - Stabilizing wealth in real terms: - Requires relatively less fiscal effort. - 2022 IMF TA report finds the non-resource primary deficit would need to be around 8-9 percent of non-resource GDP in coming years (6½-7 percent of GDP), equivalent to a fiscal surplus of 2 percent of GDP (using same assumptions as above). ### Implications and historical context - Consistent small deficits or fiscal surpluses will be required in the medium to long term regardless of anchor choice. - This represents a significant tightening relative to recent history: - Fiscal deficit averaged 5.4 percent of GDP over the past five years. - Fiscal deficit averaged 3.8 percent of GDP in the five years before the pandemic. ### Financial sector resilience and FSAP findings (Annex V) - Main findings: - Botswana has strengthened supervisory and regulatory frameworks since 2007. - During the pandemic, the financial sector performed well due to policy measures and strong financial positions. - Structural and emerging global risks: high volatility in diamond prices, geopolitical developments, tightening global financial conditions. - These risks could negatively affect economic recovery, the external position, and reserves. - Resilience and stress-testing: - Banking system would remain above regulatory thresholds even under the adverse scenario due to well-capitalized banks and strong net income. - Insurance companies in non-bank financial sector are well capitalized and would not face a capital shortfall under severe stress. - Risks and recommended supervisory enhancements: - Concentration of large, short-term deposits from non-bank financial institutions warrants close monitoring of funding and liquidity risks; implementation of Basel III liquidity standards recommended to improve monitoring. - Need to adopt a risk-based supervisory framework; build capacity for consolidated supervision; strengthen guidance for problem assets, provisioning, liquidity, and interest rate risk; enhance corporate governance oversight. - Incorporate tools for reviewing banks' internal capital adequacy and risks into supervisory review; strengthen operational independence of Bank of Botswana's supervision. - Macroprudential and household indebtedness: - Authorities have made progress in institutional framework for macroprudential policy (Bank of Botswana Amendment Act; revisions to Banking Act). - Additional macroprudential tools should be developed contingent on systematic data collection for calibration. - Financial safety net and crisis management: - Expand Financial Stability Council to include crisis preparedness/management; establish crisis management protocols. - Strengthen crisis management framework; operationalize financial safety net arrangements; establish regulations in line with international practices for the Botswana Deposit Insurance Scheme; implement emergency liquidity framework. - Strengthen AML/CFT risk-based supervision; ensure timely availability of beneficial ownership information; increase public awareness and capacity building. - Development issues: - Need a well-coordinated financial sector development strategy to deepen the sector and channel resources effectively. - Development Finance Institutions (DFIs) have not achieved expected results and hold high levels of non-performing assets. ### Capacity development (Annex VI) — recent TA, priorities, and planned work - Main TA providers: AFRITAC South, MCM, FAD, STA; other expertise from LEG and ICD. - Recent TA and highlights: - Review of public investment management (PIMA and C-PIMA). - TA on local bond market development. - TA on fiscal rules. - FSAP missions (June 2022 to May 2023). - Two SIPs for consultation on SOE reforms and exchange rate regime. - Ongoing and planned activities: - National account rebasing in FY2024; updating CPI and expanding PPI baskets. - TA on debt sustainability analysis (DSA) and macroeconomic forecasting and analysis (MFA). - Overview of domestic tax system planned for FY2024. - Work to strengthen legal framework and establish Botswana Deposit Insurance Scheme (BDIS) and resolution framework. - Peripatetic monetary policy expert (former IMF staff) visiting periodically. - Authorities’ follow-up and implementation: - Authorities have shown ownership and generally followed up on TA recommendations. - Implementation has been relatively good on financial sector and monetary policy (transition of policy rate to MoPR, introduction of interest rate corridor) and improving national accounts and price statistics reporting. - The fiscal rule previously designed for Botswana is yet to be implemented. - Capacity Development priorities (selected surveillance priorities and CD objectives preserved as in source): - General Macroeconomic Analysis: Refine nowcasting tool using a composite index of leading indicators. - Revenue Mobilization and Administration: Provide comprehensive review of the domestic tax system; assist with tax legal framework according to international best practices; provide training on revenue forecasting. - Public Financial Management: Improve coverage and quality of fiscal reporting; improve public investment management and build capacity on project appraisal, project, risk, costing and management; strengthen identification, monitoring, and management of fiscal risks; improve laws and effective PFM institutions; strengthen fiscal risks management framework. - Fiscal Framework: Provide training for building DSA capacity; build capacity in development of medium-term debt strategy (MTDS) and annual borrowing plans; assist with framework for contingent liabilities including PPPs; improve fiscal policies and institutional frameworks to combat climate change and its impacts. - Central Bank Operations: Develop and strengthen central bank’s capacity to provide Lender of Last Report (LOLR) functions; strengthen efficient implementation of monetary policy under the existing regime; assist with drafting of national payment law. - Financial Supervision and Regulation: Assist with structural and legal form of the Deposit Protection Fund; review cybersecurity regulation and undertake cybersecurity risk examination; strengthen crisis preparedness and bank resolution framework; design optimal fintech arrangements including CBDC feasibility study; strengthen legal framework to facilitate establishment of BDIS; assist in developing resolution framework. - Monetary and Macroprudential Policy Implementation and Operations: Build capacity to communicate the monetary policy mandate and objectives; assist with drafting of Central Bank/Macroprudential Oversight Law; modernize liquidity management framework and strengthen forecasting; provide training on local currency bond market development. - Improve Quality of Statistics: Prepare national account rebasing for 2024; update and strengthen compilation and dissemination of external account and price statistics; expand coverage of government finance statistics to include extrabudgetary entities and local governments and improve classification of current and capital expenditures. ### Authorities’ responses to past recommendations (selected) - Policy mix: - Authorities project a wider deficit in FY2023 but intend strong fiscal consolidation in the following two years and are considering introduction of a fiscal rule to save a larger share of mineral revenue. - Temporary VAT reduction implemented: from 14 percent to 12 percent from August 2022 to end-March 2023, and zero rating of cooking oil and liquid petroleum gas until end-February 2023. - Monetary policy: - Authorities kept interest rates unchanged; this aligned with the fast decline in inflation. - Nominal depreciation crawl rate reduced from 2.9 in 2022 to 1.5 in 2023. - Authorities are engaging with FSAP recommendations to strengthen monetary policy transmission. - Financial sector development and regulation: - Authorities released a Government Borrowing Strategy and Government Securities Auction Calendar to assist bond market development. - Request for TA on fintech strategy (including CBDC feasibility study) and consideration of consolidating development finance institutions. - Financial oversight has been strengthened; further reforms and TA are in progress. *Source: IMF country report content provided in the input.* ### introduction of the BoBAA (2022) which gives additional ### 1bwaea2023002 - introduction of the BoBAA (2022) which gives additional ### Financial sector legal reforms and stability framework - The introduction of the BoBAA (2022) gives additional powers to the Financial Stability Council. - Amendments to the Banking Act, which will create a stronger legal basis for financial stability oversight, was approved by Parliament in April 2023. - The AML/CFT regime has undergone significant improvements, and more resources are being put towards enforcement. - Work on crisis preparedness and the bank resolution framework is ongoing. - Authorities plan to use recommendations of the recently completed Financial Sector Assessment Program (FSAP) to formulate a Financial Sector Development Strategy (2024–2029). ### Structural policies and public investment - Proceed with plans to prioritize reforms and avoid reliance on import substitution and restrictions. - Explore options for capturing a greater share of value-added from the tourism sector and accelerate climate change policies. - The 2023 Budget has proposed a significant increase in infrastructure investment, but the IMF PIMA found that additional efforts are required to improve the efficiency of investment. - Reform of the SOE sector remains a policy priority, but progress to privatize these entities has been limited. - Import restrictions on certain goods (e.g., vegetables) remain in place. - The IMF C-PIMA report found that climate-related public investment initiatives are generally at early stages of implementation. ### Relations with the Fund and other IFIs - Membership Status: Joined July 24, 1968; Article VIII. - Quota: 197.20 SDR (million) — Percent of Quota 100.0. - Fund holdings of currency: 140.44 SDR (million) — Percent of Quota 71.22. - Reserve position in Fund: 56.77 SDR (million) — Percent of Quota 28.79. - Net cumulative allocation (SDR Department): 246.44 SDR (million) — Percent of Quota 124.97. - Holdings (SDR Department): 249.21 SDR (million) — Percent of Quota 126.37. - 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: crawling peg arrangement against a weighted basket of currencies comprising the SDR and the South African Rand. - As of June 13, 2023, the exchange rate of the U.S. dollar to the Pula was US$1= P13.19. - As of June 13, 2023, the exchange rate of the South African rand to the Pula was R1=P0.72. - 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 19, 2022. - Relations with other IFIs listed: World Bank; African Development Bank (AfDB); IMF Regional Technical Assistance Center for Southern Africa (AFRITAC South); Japan International Cooperation Agency (JICA); OPEC Fund for International Development (OFID). ### Data adequacy and statistical issues (As of June 2023) - General: Data provision has some shortcomings in national accounts, fiscal, monetary, and external sector statistics but is broadly adequate for surveillance. - National accounts: - Statistics Botswana (SB) rebased national accounts in September 2021, updating the base year from 2006 to 2016. - Areas for further improvement: coverage of national accounts surveys, quarterly GDP estimates, estimation of GDP deflators. - Price statistics: - Monthly consumer price index (CPI) is available on a timely manner. - Updated CPI was disseminated in March 2019, with weights from the 2015/16 Multi-Topic Household Survey. - Owner-occupied housing (OOH) is currently excluded; SB continues efforts to expand CPI coverage to include OOH. - Producer price index (PPI) is disseminated on an ad-hoc basis and is available through Q4:2022. - AFRITAC South assisted to expand CPI coverage to include OOH and expand PPI coverage to include agriculture and manufacturing. - Government Finance Statistics (GFS): - MoF compiles cash-based quarterly and annual budgetary central government data following the Government Finance Statistics Manual 2014. - Gaps: no balance sheet data; no data compiled for extrabudgetary institutions, consolidated central government, and consolidated general government. - As of April 2023, authorities working on collecting data for extrabudgetary units (non-market parastatals); no timeframe for completion. - Improvements allow breakdown of transfers expense to distinguish grants, subsidies, social benefits, and other expenses; challenges remain with distinguishing between current and capital outlays in the development budget. - Monetary and Financial Statistics (MFS): - Bank of Botswana (BoB) compiles MFS using standardized report forms consistent with the Monetary and Financial Statistics Manual and Compilation Guide 2016. - Data covers the central bank, other depository corporations, and other financial corporations; coverage expanded to pension funds, insurance companies, and the non-money market fund. - BoB reports series and indicators to the Financial Access Survey (FAS), including mobile and internet banking, mobile money, gender-disaggregated data, commercial bank branches per 100,000 adults, and ATMs per 100,000 adults. - Financial sector surveillance: BoB reports quarterly data on financial soundness indicators, including 12 core and 11 encouraged indicators for deposit-takers. - External sector statistics: - Annual balance of payments (BOP) data with quarterly breakdown is published in aggregated format. - Preliminary BOP data disseminated within three months after period end; revised (final) data available after nine months. - BoB compiles and disseminates annual international investment position (IIP) (preliminary data with a nine-month lag). - BOP and IIP statistics compiled in line with BPM6. - Progress made on source data; comprehensive surveys designed for tourism, telecommunication, mining, money transfer, and other sectors. - Remaining measures to reduce net errors and omissions (NEOs): (i) adjust imports from neighbor countries to f.o.b. valuation; (ii) fine-tune travel services estimation model; (iii) increase coverage of current and capital transfers by including data on government grants and TA/investment projects; (iv) cover foreign assets of asset managers, pension funds, and insurance companies. - In June 2023, BoB began disseminating the International Reserves and Foreign Currency Liquidity Data Template (IRFCL). - Data Standards and Quality: - Botswana implemented recommendations of the Enhanced General Data Dissemination System (e-GDDS) and disseminates 13 of the 15 encouraged data categories on its National Summary Data Page (NSDP). - Areas for improvement: periodicity and timeliness of data dissemination on the NSDP for reserve assets, producer price index, central government operations, depository corporations survey, central bank survey, BOP, IIP, and production index; capacity building for general government operations and external debt. ### Table of Common Indicators Required for Surveillance (As of June 13, 2023) — selected entries preserved exactly - Exchange Rates — Date of Latest Observation: May 2023 — Date Received: 06/02/2023 — Frequency of Data/Reporting/Publication: A/M / A/M / A/M. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities — Date of Latest Observation: Feb 2023 — Date Received: 5/30/2023 — Frequency: A/M / A/M / A/M. - Reserve/Base Money — Feb 2023 — 5/30/2023 — A/M / A/M / A/M. - Broad Money — Mar 2023 — 5/10/2023 — M / M / M. - Central Bank Balance Sheet — Feb 2023 — 5/30/2023 — A/M / A/M / A/M. - Consolidated Balance Sheet of the Banking System — Mar 2023 — 5/30/2023 — A/M / A/M / A/M. - Interest Rates — May 2023 — 6/7/2023 — M / M / M. - Consumer Price Index — Apr 2023 — 5/30/2023 — A/Q/M / A/Q/M / A/Q/M. - Revenue, Expenditure, Balance, and Composition of Financing — General Government — NA / NA / NA / NA / NA. - Revenue, Expenditure, Balance, and Composition of Financing — Budgetary Central Government — Feb 2023 — 4/30/2023 — A/Q/M / A/Q/M / A/Q/M. - Stocks of Central Government and Central Government-Guaranteed Debt — 2022Q4 — 4/30/2023 — A/Q / A/Q / A/Q. - External Current Account Balance — 2022Q4 — 5/30/2023 — A/Q / A/Q / A/Q. - Exports and Imports of Goods — 2022Q4 — 4/30/2023 — A/Q / A/Q / A/Q. - GDP/GNP — 2022Q4 — 4/6/2023 — A/Q / A/Q / A/Q. - Gross External Debt — 2022 — 4/30/2023 — A / A / A. - International Investment Position — 2022 — 4/30/2023 — A / A / A. ### Recent economic developments and outlook - Recovery and resilience: - Botswana successfully weathered external shocks from COVID-19 and the war in Ukraine, benefitting from historically robust fiscal and external buffers. - The economy rebounded strongly and registered one of the highest growth rates in sub-Saharan Africa. - Authorities aim to rebuild fiscal and external reserve buffers and accelerate economic transformation, targeting high-income status by 2036. - Adopted a two-year Transitional National Development Plan (TNDP) as successor to NDP 11, ending March 2023, prioritizing digital transformation, business environment reform, infrastructure development, value chain development, livelihoods, and climate change mitigation and adaptation. - Growth and inflation: - Real GDP grew by 5.8 percent in 2022 and exceeded pre-pandemic levels and the long-term average of 4 percent. - Growth projected to slow to 3.8 percent in 2023, reflecting expected decline in diamond production and weaker global environment. - Growth expected to pick up to 4.1 percent in 2024 as mining sector recovers. - Non-mining sector performance expected to improve, supported by government actions. - Growth outlook remains highly uncertain and dependent on diamond market developments; climate shocks pose threats to agriculture, mining, and tourism. - Inflation declined from a peak of 14.6 percent in August 2022 to 4.6 percent in June 2023 and further to 1.5 percent in July 2023. - Inflation breached the lower bound of BoB’s medium-term objective range of 3–6 percent and is forecast to remain within the objective range into the medium term. - External position and reserves: - Current account strengthened from a deficit of 1.4 percent of GDP in 2021 to a surplus of 2.9 percent of GDP in 2022, mainly reflecting higher volumes and prices of diamonds. - As at May 2023, foreign exchange reserves stood at 5.9 months of prospective imports, as estimated by staff. - Authorities estimate foreign exchange reserves to be 9.2 months of actual imports. ### Fiscal policy and public finances - Authorities concur on importance of fiscal consolidation and medium-term debt sustainability. - Remedial measures being explored: strengthening tax audit capabilities, public private partnerships (PPPs), and using the Development Manager Model. - Fiscal outturn improved from a deficit of 2.4 percent of GDP in FY2021 to a balanced budget in FY2022. - Authorities project a widening of the fiscal deficit in FY2023 due to higher budgeted capital expenditure to address delayed infrastructure development. - Fiscal strategy emphasizes rebuilding buffers and preservation of wealth for future generations; supportive legislature being developed to ensure inter-generational equity. - Authorities considering a fiscal rule to automatically save 40 percent of mineral revenues, combined with a deficit rule to constrain spending and ensure the revenue split rule works. - Botswana’s debt is assessed at low risk of distress; authorities prioritize debt management capacity building and launched a Government Borrowing Strategy with a calendar for FY2023/24. ### Monetary and exchange rate policy - Bank of Botswana remains committed to medium-term price stability. - BoB projects inflation to remain lower in the short-to-medium term than in 2022 due to projected lower international commodity prices and waning impact of 2022 administered price increases. - The Monetary Policy Committee (MPC) has maintained the Monetary Policy Rate (MoPR) at 2.65 percent thus far, following a cumulative 151 basis points policy rate increase in 2022. - Rate increases in Botswana in 2022 were lower compared to other SSA countries and EMDEs; the authorities have not experienced any adverse capital flow changes. *Prepared by African Department in Consultation with the Statistics Department — Botswana: Staff Report for the 2023 Article IV Consultation — Informational Annex (July 26, 2023).* ### 9. The authorities continue to review the appropriateness of the current crawling band ### 9. The authorities continue to review the appropriateness of the current crawling band ### Exchange rate regime - The authorities continue to review the appropriateness of the current crawling band exchange rate regime to ensure continued alignment with the maintenance of a stable real effective exchange rate to support international competitiveness of domestic firms. - They value the inherent flexibility in the exchange rate framework that facilitates the necessary adjustments. ### Financial Sector Policies - Botswana’s financial sector remains profitable and stable, with adequately capitalized banks and low NPLs. - The authorities are strengthening legal and regulatory frameworks for financial stability, with the recently adopted Bank of Botswana Amendment Act and revised Banking Act now operational. - The authorities value the recommendations of the recent FSAP and will collaborate with the World Bank to develop a Financial Sector Development Strategy (FSDS) that will run from 2024 to 2029 taking a cue from the FSDS 2012–2016 that benefitted from the 2007 FSAP. - The FSDS should help in the achievement of broader macro-economic goals; meanwhile, the authorities are advancing work on some of the FSAP recommendations. - Noticeable improvements have been seen in the operation of the interbank market and policy transmission, following the implementation of monetary operations reforms last year. - The Deposit Insurance Scheme established within the auspices of the BoB Amendment Act is now operational; the regulations covering governance of the scheme, membership and premiums contributions, coverage of deposits and funding modalities were published in July 2023. - The authorities continue to make improvements to the AML/CFT framework by addressing outstanding actions. - Ahead of the 2026 mutual evaluation, they aim to conduct a mock evaluation to assess progress and the timely addressing of deficiencies. ### Structural reforms and diversification - The authorities view accelerating structural reform implementation as articulated in the Reset Agenda and the TNDP as key to transforming Botswana’s economy into high income status by 2036. - Reforms to diversify the economy are prioritized to unlock the economy’s growth potential, enhance resilience to external shocks, and address the high unemployment rate. - Priority areas include trade facilitation and integration, more efficient and climate-resilient infrastructure investment, and support for high-productivity and export-oriented sectors. - An in-principle sales and mining agreement reached with De Beers Mining Company is expected to contribute to economic diversification through value-chain enhancement and the creation of a P10 billion ($750 million) Fund over the next 10 years to support new initiatives in non-mining sectors like agriculture, solar, climate change, and tourism. - Work in the Special Economic Zones continues, including in agro-processing, mineral beneficiation and cargo, freight, and logistics. - To improve food security, the country’s grain storage capacity has been tripled to allow higher production. - The Power Corporation has put in place measures to meet the country’s electricity demand, including plans for renewable power plants (solar and wind) to augment existing coal plants and diesel run peak plants. ### Climate change considerations - Climate change considerations continue to play a role in the authorities’ key decisions, guided by the National Climate Change Policy. - The country is vulnerable to prolonged droughts, water shortages and animal diseases, which have been exacerbated by climate change. - Notwithstanding the country’s huge conservation efforts (more than 45 percent of the land mass is used for conservation – national parks and game reserves), climate change has worsened the animal-human conflict. - The authorities are making efforts to balance conservation and development considerations and appreciate the Fund’s technical support through the C-PIMA; they are reviewing the recommendations with a view to embed climate change into sectoral and infrastructure development plans. ### Conclusion and outlook - Botswana authorities remain committed to safeguarding macroeconomic stability while positioning the economy to attain high-income status by 2036. - Their efforts are geared to help build resilience, strengthen inclusiveness, and accelerate growth. - They look forward to Directors’ advice and support in concluding the 2023 Article IV consultation, as well as continued Fund engagement and technical assistance to help advance the reform agenda. *Source: IMF staff report excerpt.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1bwaea2023002.pdf_