IMF Staff Completes 2023 Article IV Mission to Botswana
IMF News, July 14, 2023
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Bibliographic details
- Published: July 14, 2023
Recent economic performance
- Growth:
- "Almost 12 percent growth in 2021"
- "5.8 percent in 2022"
- Long-run average: "4 percent"
- Drivers of recovery:
- Elevated mining production
- Robust manufacturing and construction
- Inflation:
- Peaked at "14.6 percent in August 2022"
- Fallen to "4.6 percent in June 2023"
- Bank of Botswana’s medium-term objective range: "3 - 6 percent"
- Lower oil prices caused a steep decline in transport inflation
- Fiscal position:
- Improved from a "2.4 percent of GDP deficit in FY2021" to a "balanced budget in FY2022"
- Improvement mainly due to measured expenditure growth and higher mineral revenue
- Monetary policy:
- Bank of Botswana policy rate maintained at "2.65 percent since August 2022"
- Prior increases: "a combined 151 basis points between April and August 2022"
Outlook and projections
- Growth projections:
- "Growth is expected to slow from 5.8 percent in 2022 to 3.8 percent in 2023"
- Reasons: projected decline in diamond production and weaker global environment
- Forecast: rebound gradually in 2024 and 2025, to above "4 percent" due to higher prices and quantities of diamonds produced
- Inflation projection:
- "Monthly inflation is projected to remain within the Bank of Botswana’s medium-term objective range of 3 - 6 percent this year and next"
- Factors: decline in international oil prices, positive real lending rates, prospect of regulated prices remaining unchanged
- Policy implication: monetary stance appropriate, but central bank should be ready to raise the policy rate if inflation risks materialize
- Fiscal projection:
- Fiscal deficit projected to widen by "about 2 percent of GDP in FY2023", mostly due to higher budgeted capital expenditure
- Government plans to improve the fiscal position by "2½ percent of GDP" over the subsequent two years and achieve a small fiscal surplus by containing the wage bill and transfers
- Emphasis: consolidation critical to preserve fiscal sustainability and support FX reserves
- Concern: large depletion of government deposits in recent years and longer-term prospects of exhaustion of diamond resources call for fiscal prudence
Monetary and financial sector assessment
- Monetary policy stance: described as appropriate given inflation developments
- Financial sector soundness:
- "The financial sector is sound, stable, and resilient."
- Recommendations to strengthen financial stability:
- Operationalize frameworks for emergency liquidity assistance, deposit insurance, and bank resolution
- Continue to enhance financial sector supervision
- Deepen interbank and bond markets to support financial sector development
- Improve public financial management and monetary policy transmission
Structural reforms and policy recommendations
- Need for supply-side structural reforms to support diversification and increase the relative size of the private sector
- Expected outcomes: boost growth potential, reduce unemployment, enhance resilience to external shocks
- Policy priorities listed:
- Trade facilitation and integration
- Parastatal reform
- More efficient and climate-resilient infrastructure investment
- More targeted support for high-productivity, export-oriented sectors
Mission details and statement
- Mission dates and leadership:
- IMF team visited Gaborone from "July 4-14, 2023"
- Mission led by Mr. Luc Eyraud, Division Chief in the IMF African Department and Mission Chief for the Republic of Botswana
- Nature of release:
- End-of-Mission press release conveying preliminary findings; views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board
- Closing remarks:
- IMF staff thanked the authorities for the "highly constructive dialogue during the Article IV consultation."
Press Release No. 23/263 — IMF Staff Completes 2023 Article IV Mission to Botswana