IMF Executive Board Concludes 2024 Article IV Consultation with Botswana

IMF News, September 10, 2024

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Canonical URL: IMF Executive Board Concludes 2024 Article IV Consultation with Botswana

Growth slowed from 5.5 percent in 2022 to 2.7 percent in 2023, below long-run potential growth of 4 percent.
Growth is expected to slow further to 1 percent in 2024 primarily because of a diamond market contraction.
Growth is forecast to rebound and average 5 percent over the next two years (noting a strong recovery projected in 2025 driven by higher prices and quantities of diamonds produced).
Risks to the outlook remain elevated due to:
- The emergence of cheaper lab-grown diamonds.
- Uncertainty over the recovery of major export markets.
- The announced sale of De Beers by its UK parent company.

Inflation has declined sharply since the peak of mid-2022 and returned to the central bank’s medium-term objective range of 3–6 percent.
Inflation has remained below the ceiling of the central bank’s medium-term objective range since July 2023 and is expected to remain in the medium term.
Staff assessment: The monetary policy stance is appropriate; underlying pressures measured by core inflation indicators seem contained and inflation expectations are well anchored.

Public debt is low at 20 percent of GDP.
Government deposits at the central bank have significantly reduced over the past decade.
Fiscal trajectory:
- The fiscal deficit is projected to widen to 6 percent of GDP in FY2024, reflecting a further decline in mineral revenues and higher capital expenditure.
- The government plans a fiscal expansion in FY2024 followed by two years of substantial fiscal adjustment to reach a fiscal surplus.
- Staff assesses that targeting a 1 percent of GDP fiscal surplus would generate sufficient savings to protect the budget against major economic shocks.
Staff guidance:
- Near term: Some fiscal relaxation is warranted given the widening output gap, but authorities should reprioritize capital projects to limit the deficit increase and ensure highest value for money.
- Medium term: Planned fiscal consolidation is critical to stop depletion of government financial buffers, build resilience, and preserve fiscal sustainability.
- There is scope to increase revenues alongside expenditure restraint.
- Institutional reforms recommended: introduce a fiscal rule, adopt more credible medium-term budgeting, and possibly design a well-structured SWF.

Despite lower diamond exports, FX reserves increased in 2023 supported by higher customs union receipts.
External position: 2023 external position assessed as broadly in line with fundamentals and desirable policies.
Medium-term outlook: External position should soften with FX reserves decreasing to 5 months of imports due to weak growth in customs revenues and higher government foreign debt repayments.
Gross official reserves (end of period, millions of USD) projections:
- 2023: 4,757
- 2024: 4,587
- 2025: 4,879
- 2026: 5,198
- 2027: 5,600
- 2028: 5,852
- 2029: 6,014

The financial sector is broadly sound, stable, and resilient.
Authorities’ plans to strengthen financial sector oversight, deepening, and inclusion are welcomed.
Faster implementation of 2023 FSAP recommendations is encouraged, including:
- Move to implement Basel III liquidity standards.
- Enhance risk-based supervision of banks.
- Reinforce the crisis management framework (ELA, bank resolution).
- Deploy macroprudential tools to address household debt risk.

Fundamental shift needed toward greater private sector participation, a more diversified export base, and a more efficient public sector.
Priority actions recommended:
- SOE modernization.
- Improve infrastructure for doing business (internet, energy, logistics).
- Trade facilitation measures.
- More efficient social protection.
- Financial inclusion reforms to support small entrepreneurs.
These goals could be enshrined in the new NDP, supported by time-bound and well-prioritized action plans.

Real GDP (annual percent change): 2022: 5.5; 2023: 2.7; 2024 (projection): 1.0; 2025 (projection): 5.2; 2026 (projection): 4.8; 2027 (projection): 4.0.
Nonmineral GDP (annual percent change): 2023: 2.6; 2024 (projection): 5.1; 2025 (projection): 4.1.
GDP per capita (US dollars): 2023: 7,250; 2024 (projection): 7,341; 2025 (projection): 8,003; 2026 (projection): 8,602.
Diamond production (millions of carats): 2022: 24.5; 2023: 25.1; 2024 (projection): 21.1; 2025 (projection): 23.3; 2026 (projection): 25.0.
Central government total revenue and grants (percent of GDP): 2023: 28.4; 2024 (projection): 28.2; 2025 (projection): 28.6.
SACU receipts (percent of GDP): 2022: 9.6; 2023: 6.4; 2024 (projection): 6.6; 2025 (projection): 6.3.
Mineral revenue (percent of GDP): 2022: 13.3; 2023: 7.4; 2024 (projection): 5.8; 2025 (projection): 9.5.
Total expenditure and net lending (percent of GDP): 2023: 28.3; 2024 (projection): 26.2.
Overall balance (deficit –) (percent of GDP): 2023: -4.7; 2024 (projection): -6.0; 2025 (projection): -1.7; 2026 (projection): -0.5; 2027 (projection): 0.5.
Total central government debt (percent of GDP): 2023: 22.6; 2024 (projection): 22.1; 2025 (projection): 20.7; 2026 (projection): 20.0.
Government deposits with the BoB (percent of GDP): 2022: 0.4; 2023: 0.6.
Current account balance (percent of GDP): 2023: -0.6; 2024 (projection): -2.0; 2025 (projection): 1.5; 2026 (projection): 1.2.
Months of imports of goods and services (gross official reserves basis): 2023: 7.3.

Press Release No. 24/321 — International Monetary Fund (September 10, 2024).