A team from the International Monetary Fund (IMF) led by Enrique Gelbard
visited Gaborone from May 1-16 for discussions on the 2017 Article IV
Consultation with Botswana. The discussions covered recent developments and
prospects and focused on policies to support continued economic stability
and promote inclusive growth. At the end of the visit, Mr. Gelbard issued
the following statement:
“Following a downturn in 2015, Botswana’s pace of economic activity
recovered in 2016, supported by improvements in diamond sales, fiscal
stimulus, and an accommodative monetary policy. The rate of inflation
remained low, close to the lower band of the Bank of Botswana’s inflation
objective range of 3–6 percent, and the trade weighted exchange rate has
been broadly stable. Botswana’s exchange rate regime of a managed rate of
crawl against a basket of currencies continues to serve the country well
and, at the moment, no changes are deemed necessary.
“In the past year, government spending rose in line with the government’s
Economic Stimulus Program, but the fiscal deficit fell to about 1 percent
of GDP owing to higher revenues from diamonds. The financial sector has
remained well capitalized, profitable, and stable, despite a small increase
in non-performing loans associated with the liquidation of the state-owned
BCL copper and nickel mine.
“Looking ahead, positive prospects for the diamond sector could lead to
somewhat higher rates of GDP growth in 2017-19. Fiscal projections envisage
moderate deficits this year and the next, with surpluses thereafter. The
fiscal profile is predicated on the authorities’ intention to increase tax
revenues and slowdown the pace of spending on wages and salaries and on
transfers to state-owned enterprises. In this connection, tax revenue
reforms need to be accelerated to protect public finances against any
adverse developments and maintain the country’s track record of sound
fiscal management.
“As the economy finishes its cyclical recovery, and considering the
challenges to foster private sector growth and employment creation, the
authorities plan to tilt the composition of public spending to favor
investment in physical and human capital, a move to be accompanied with
steps to improve the quality and effectiveness of such spending.
Furthermore, a focus on activities with economy-wide benefits (e.g.
cost-effective investment projects, internet connectivity) will be critical
in the period ahead. To complement these efforts, the authorities need to
proceed with the privatization process and reforms to improve the
efficiency and financial viability of government enterprises, reduce
bureaucratic procedures for private businesses, and improve education
outcomes and the skills of the labor force.
“As envisaged in the latest National Development Plan, the authorities plan
to promote economic diversification into selected sectors. In this regard,
it would be preferable to focus on a few sectors with growth and employment
potential (e.g. tourism in the north of the country) by designing and
implementing development strategies with concrete goals, time-bound steps,
and monitorable outcomes.
“Delivering on the above policies and reforms will ensure economic
stability and pave the way for private sector-led growth and employment
creation in Botswana.
“The IMF staff team met with the Minister of Finance and Economic
Development, Honorable O. Kenneth Matambo, the Governor of the Bank of
Botswana, Moses Pelaelo, the Permanent Secretary of the Ministry of Finance
and Economic Development, Solomon Sekwakwa, other senior government
officials, and representatives of the private sector and development
partners.
“The IMF team thanks the authorities for their hospitality and constructive
discussions.”
