Press Release: Statement at the Conclusion of an IMF Mission to Botswana

IMF News, May 31, 2011

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Canonical URL: Press Release: Statement at the Conclusion of an IMF Mission to Botswana

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

Finding: "Thanks in large part to good policies supported by a rebound in diamond exports, the Botswana economy is now back onto a strong growth trajectory."
Finding: Despite rebound in growth, Botswana faces the challenge of sustaining revenue as diamond revenues are likely to plateau in the next few years.

Finding: Inflation has edged up in recent months triggered by high international commodity prices.
Finding: Inflation is currently higher than the Bank of Botswana’s medium-term objective band of 3-6 percent.
Assessment: "At this stage, there appears to be no firm evidence of generalized price pressures in the domestic economy."
Recommendation: The mission supports the Bank of Botswana’s neutral policy stance with respect to interest rates as outlined in the bank’s 2011 Monetary Policy Statement.

Finding: The fiscal policy stance in the FY2011/12 budget should help to contain domestic demand and rebuild the Pula Fund.
Finding: "The government’s overall expenditure envelope (as a share of GDP) is very high by international standards."
Recommendations and policy priorities:
- Conduct a thorough assessment of pockets of unproductive spending and ways to increase efficiencies.
- Improve public financial management, including better prioritization of overall government spending.
- Emphasize maintenance and refurbishment of existing infrastructure projects rather than initiating new projects.
- Contain the growth of budget appropriations of current transfers, goods and services, and the wage bill.
- Wage policy should be prudent; any nominal adjustment made in FY2011/12 would need to be financed by either over performance in revenues or expenditure savings so that the budget deficit remains unchanged.
- Reduce the size of the wage bill as a share of GDP going forward, and make the public service leaner and more efficient.
- Rebuild the Pula Fund for the benefit of future generations given the likely plateau of diamond revenues.
Institutional reform: The mission welcomes efforts by the Botswana Unified Revenue Service to expand the tax base including through the establishment of a Large Taxpayer Unit (LTU) in line with international best practice.

Finding: Despite its upper middle-income status, Botswana faces significant development challenges.
Recommendation: A broad-based and private sector led economy is essential to unleash and sustain growth, in line with the tenth national development plan (NDP10).
Recommendation: Foster economic diversification beyond the diamonds sector by targeting economic sectors with high income and employment multiplier effects, while avoiding unwarranted tax exemptions that would narrow the tax base.
Finding: Tackling the high level of structural unemployment is needed to improve the quality of economic growth.
Policy support: The mission welcomes progress on the government’s tertiary education reform program and the Human Resource Development Council to help address the skills mismatch in the labor market.

The mission thanked the authorities for their hospitality, timely provision of required information, productive and open discussions, and excellent cooperation during the mission.

Source: Press Release: Statement at the Conclusion of an IMF Mission to Botswana, May 31, 2011, IMF.