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

IMF News, June 1, 2012

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Mission period: May 21-June 1, 2012.
Real GDP growth forecast:
- Overall real GDP growth would be about 4 percent in 2012 compared to 5 percent in 2011.
Sectoral notes:
- International diamond market showed some signs of recovery in the first quarter of 2012, following a relatively poor performance towards the end of 2011.
- Non-mining GDP growth is likely to moderate on the back of the imminent completion of large construction projects.
Risk assessment:
- The current fragile external environment poses considerable uncertainty on the global economic outlook and mineral export demand.
- Policy implementation ahead will require a delicate balancing act.

Inflation status:
- Inflation is currently higher than the Bank of Botswana’s medium-term objective range of 3 -6 percent, but has trended downward in recent months.
- At this stage, there appears to be no firm evidence of generalized price pressures in the domestic economy.
Policy stance:
- The mission supports the Bank of Botswana’s current accommodative monetary policy stance.

FY2012/13 Budget assessment:
- Mission commends the Government of Botswana’s FY2012/13 Budget which targets a small fiscal surplus.
- The budget is centered on further expenditure restraint while improving the quality of spending to ensure value for money.
Fiscal recommendations:
- Continue emphasis on expenditure control given the government’s spending envelope (above 30 percent of GDP) is high by international standards.
- Undertake a thorough assessment of pockets of unproductive spending and ways to increase efficiencies.
- Rebalance revenue-raising and expenditure-cutting measures.
- Complement budget measures with policies that widen the domestic tax base and prepare the economy for an eventual decline in diamond revenues.
- Specific revenue measures include a judicious rationalization of tax exemptions and improvements in tax administration to broaden the revenue base.

Progress and gaps:
- Botswana’s financial system has grown and diversified considerably over the last decade.
- The level of financial intermediation is relatively low compared with other high middle-income countries although it has improved in more recent years.
Policy support:
- Mission welcomes government emphasis to broaden access to financial services and improve financial intermediation, consistent with Vision 2016 and National Development Plan (NDP) 10.
- Mission welcomes emphasis in the FY2012/13 budget speech on enhancing the capacity of Non-Bank Financial Institutions Regulatory Authority (NBFIRA).

Social and labor priorities:
- Government emphasis on poverty eradication, inclusive growth, tackling high unemployment, and diversifying the economy is well placed.
- Considerable strides have been made towards reducing absolute poverty as reflected in the Botswana Core Welfare Indicators survey of 2009/10.
Recommendations to tackle unemployment and inequality:
- Encourage greater financial inclusion and measures to target inequality at its sources to enhance inclusive growth.
- Achieving lower unemployment will require faster economic growth and addressing distortions in the labor market including the skill mismatch.
- Support for tertiary education reform program, establishment of the Human Resource Development Council, and the graduates’ internship program to help address skill mismatch.
- Urges the government to move ahead with regulatory reforms to improve the business climate to support the Economic Diversification Drive (EDD).

Mission appreciation:
- The mission thanks the authorities for warm hospitality, timely provision of required information, productive and open discussions, and excellent cooperation during the mission.

Press Release: Statement at the Conclusion of an IMF Mission to Botswana — June 1, 2012