Public Information Notice: IMF Executive Board Concludes 2010 Article IV Consultation with Botswana
IMF News, August 27, 2010
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- Published: August 27, 2010
Overview
- Publication: Public Information Notice (PIN) No. 10/119
- Date: August 27, 2010
- Context: Executive Board concluded the Article IV consultation with Botswana on a lapse of time basis (concluded July 27, 2010).
- Main point: Botswana is recovering from its worst recession in at least 40 years, with policy shifts from short-term demand support toward medium-term consolidation and structural reform.
Macroeconomic outlook and risks
- Findings:
- Economy contracted by 3.7 percent in 2009.
- Nonmining sector grew by 6.2 percent in 2009.
- Real GDP projected to reach 8.4 percent in 2010, led by a rebound in diamond production.
- Nonmineral GDP growth expected to slow to 4.8 percent in 2010.
- Inflation increased to 7.8 percent in May 2010; expected to possibly rise a little further before falling back within the Bank of Botswana’s objective of 3–6 percent in mid-to-late 2011.
- Current account balance set to improve gradually as diamond market recovers.
- Risks:
- Downside: A double-dip recession in advanced economies could renew diamond market difficulties.
- Upside: Stronger-than-expected demand from China and India could boost diamond recovery.
- Regional sensitivity: Developments in South Africa will influence SACU revenue-sharing receipts and power-sector investment prospects.
Fiscal and monetary policy assessment
- Executive Board endorsement:
- Past prudent macroeconomic management enabled timely easing of fiscal and monetary policies during the crisis.
- Substantial fiscal consolidation will be needed as recovery proceeds to restore sustainability and safeguard external stability.
- Much adjustment should come from lower public spending due to a declining trend in mineral revenues; scope for raising nonmineral taxes is limited by the size of the private sector.
- The 2010/11 budget makes a good start; plans to balance the budget by 2012/13 and register modest surpluses thereafter are described as ambitious but warranted.
- Recent increases in public debt and a more challenging fiscal environment require a clearer framework for managing the government’s assets and liabilities.
- Anchoring inflation expectations is important; authorities should err on the side of caution before further reductions in interest rates and proceed with envisaged fiscal consolidation.
Structural reform and medium-term recommendations
- Medium-term growth projection:
- Staff projects real GDP growth will average about 6 percent over the medium term, assuming planned fiscal consolidation and recovery of diamond production and power-sector investment.
- Policy priorities ("principle objectives"):
- Doing more with less:
- Increase value for money of public spending programs.
- Strengthen public financial management, including transition to program-based budgeting and implementation of a medium-term expenditure framework.
- Letting the private sector lead:
- Promote structural reforms to encourage entrepreneurship and investment, with emphasis on cross-cutting reforms that benefit the whole economy.
- Current investments in power generation to address a key bottleneck.
- With safeguards, privatization of selected parastatals, greater use of public–private partnerships, and rationalization of commercial services provided by government could mobilize greater private sector participation.
Key statistics (2007–2010, as reported)
- National income and prices (annual percentage change unless otherwise indicated):
- Real GDP: 2007: 4.8; 2008: 3.1; 2009: -3.7; 2010 Prel./Proj.: 8.4
- Minerals: 2007: -2.0; 2008: -20.9; 2009: 16.8
- Non-mineral: 2007: 9.7; 2008: 7.5; 2009: 6.2
- Consumer prices (average): 2007: 7.1; 2008: 12.6; 2009: 8.1; 2010 Prel./Proj.: 6.7
- Consumer prices (end of period): 2007: 13.7; 2008: 5.8; 2009: 6.6
- Nominal GDP (billions of pula)1: 2007: 76.0; 2008: 91.7; 2009: 83.2; 2010 Prel./Proj.: 92.7
- Diamond production (millions of carats): 2007: 33.6; 2008: 32.3; 2009: 17.7; 2010 Prel./Proj.: 23.2
- External sector:
- Exports of goods and services f.o.b. (US$): 2007: 11.1; 2008: -3.2; 2009: -23; 2010 Prel./Proj.: 14.9
- Exports—Diamonds: 2007: -1.5; 2008: -8.1; 2009: -30.3; 2010 Prel./Proj.: 20.6
- Imports of goods and services f.o.b. (US$): 2007: 29.1; 2008: 24.9; 2009: -9.7; 2010 Prel./Proj.: 10.0
- Money and banking:
- Net foreign assets: 2007: 24.1; 2008: 20.1; 2009: -18.5
- Net domestic assets: 2007: 17.0; 2008: 19.0; 2009: -37.8; 2010 Prel./Proj.: -10.8
- Broad money (M3): 2007: 31.2; 2008: 21.1; 2009: -1.8; 2010 Prel./Proj.: 16.1
- Velocity (nominal GDP relative to M3): 2007: 1.4; 2008: 1.6; 2009: 1.5
- Credit to the private sector: 2007: 25.7; 2008: 26.6; 2009: 10.3; 2010 Prel./Proj.: 11.4
- Central government finance (Percent of GDP, unless otherwise indicated):
- Total revenue and grants: 2007: 35.8; 2008: 34.0; 2009: 31.6; 2010 Prel./Proj.: 34.9
- Total expenditure and net lending: 2007: 31.1; 2008: 39.3; 2009: 46.0; 2010 Prel./Proj.: 41.3
- Overall balance (deficit –): 2007: -5.2; 2008: -14.3; 2009: -6.4
- Non-mineral primary balance (percent of non-mineral GDP)3: 2007: -16.7; 2008: -28.5; 2009: -32.9; 2010 Prel./Proj.: -24.2
- Current account balance: 2007: 14.5; 2008: 3.5; 2009: -2.1; 2010 Prel./Proj.: -0.3
- Balance of payments: 2007: 13.9; 2008: 11.0; 2009: -12.9; 2010 Prel./Proj.: 5.4
- Total external debt4: 2007: 3.7; 2008: 3.2; 2009: 15.4; 2010 Prel./Proj.: 15.9
- Reserves and debt (in millions of US Dollars, unless otherwise indicated):
- Change in reserves (increase –): 2007: -1,718; 2008: -1,490; 2009: 1,503; 2010 Prel./Proj.: -678
- Gross official reserves (end of period): 2007: 9,743; 2008: 9,125; 2009: 8,678; 2010 Prel./Proj.: 9,382
- Reserves in months of imports of goods and services5: 2007: 20.9; 2008: 21.7; 2009: 18.8; 2010 Prel./Proj.: 20.0
- Reserves in percent of GDP: 2007: 78.7; 2008: 67.5; 2009: 74.3; 2010 Prel./Proj.: 75.1
IMF Public Information Notice No. 10/119, August 27, 2010.