Press Release No. 10/239

An International Monetary Fund mission visited Gaborone during June 1-14, 2010 to conduct the Article IV Consultation with Botswana. The mission's work focused on reviewing recent economic developments and prospects and policies to ensure continued economic stability and growth. The mission met with Minister of Finance and Development, the Honourable O. Kenneth Matambo; Bank of Botswana Governor, Linah K. Mohohlo; senior government officials, development partners, the private sector, and representatives of trade unions and civil society.

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

"Botswana is recovering from its worst recession in more than 40 years. The economy contracted by 6 percent last year as demand for diamonds collapsed in the wake of the global financial crisis. The prompt easing of fiscal and monetary policies helped to cushion the impact of difficulties in the mining sector on the rest of the economy such that the non-mining sector grew by a healthy 6.1 percent in 2009.

"The economy will likely see some rebalancing this year as mining continues its gradual recovery while growth in the non-mining sector decelerates somewhat as fiscal stimulus is withdrawn. Inflation may increase temporarily as increases in VAT, electricity tariffs, and other fees and charges feed through to prices, before falling within the Bank of Botswana's
3-6 percent objective during the course of 2011.

"With recovery now underway, fiscal policy is being appropriately redirected away from short-term demand management towards medium-term considerations. The outlook for government revenues is set to become more constrained reflecting a trend decline in mineral revenues and customs and excise receipts. The budget for 2010/11 is a good start in this process of adjustment. The government's intention to balance the budget by 2012/13 is ambitious but warranted in order to put the public finances back onto a sustainable footing.

"As the fiscal environment becomes more challenging, management of the public finances will need to improve. With less revenues available than in the past, but social challenges remaining significant, the government will need to do more with less. In this context, reforms to budget formulation and management, including greater emphasis on prioritizing spending and delivering results, become critical. More efficient and effective budget management is also one of the best ways in which the government can contribute to the diversification of the economy and the development of a vibrant private sector.

"Upon its return to Washington, the mission will prepare a final report, which could be considered by the IMF's Executive Board by late July."