{
  "title": "Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Botswana",
  "publication": "IMF News, August 1, 2012",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn1291",
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  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2012-08-01",
  "sections": [
    {
      "heading": "Background",
      "content": "- Publication: Public Information Notice (PIN) No. 12/91; concluded on July 25, 2012 under IMF lapse of time procedures.\n- Recent performance:\n  - Real GDP growth: 5.1 percent in 2011 (down from 7 percent in 2010).\n  - Growth deceleration driven by a significant slowdown in diamond exports in the second half of 2011.\n  - Non-mineral sector recorded brisk growth in 2011 despite significant fiscal withdrawal.\n  - Diamond sales for Q1 2012 showed only a very modest recovery.\n- Inflation dynamics:\n  - Consumer price inflation (year on year) declined from 9.2 percent in December 2011 to 7.7 percent in May 2012.\n  - Bank of Botswana’s medium-term objective range: 3–6 percent.\n  - Core inflation (excluding food, fuel and administered prices) declined slightly; alternative measures (including the trimmed mean) suggest a downward trend in core inflation."
    },
    {
      "heading": "Monetary and Financial Sector Developments",
      "content": "- Financial market conditions:\n  - Private sector credit growth is approaching pre-crisis levels, supported by strong growth in credit to businesses.\n  - Banks’ nonperforming loans fell notably in the second half of 2011 due to improved quality of household loans.\n  - Increased interest and non-interest income, combined with lower provisions for nonperforming loans, contributed to a rebound in banks’ profitability.\n- Policy and regulatory issues:\n  - Staff supports Bank of Botswana’s recent reform in its liquidity management framework.\n  - Recommendation: greater coordination between monetary operations and debt management through enhanced issuance of treasury securities to support burden-sharing of sterilization costs.\n  - Macro-financial vulnerability: high exposure of the banking system to household debt warrants close monitoring.\n  - Urgent need to strengthen capacity of the non-bank financial institutions’ regulator because rapid expansion has made non-banks systemically important while supervisory capacity lags.\n  - Cross-linkages between bank and non-bank financial sectors constitute an additional systemic risk."
    },
    {
      "heading": "Fiscal and External Sector Developments",
      "content": "- Fiscal outturns:\n  - Overall fiscal deficit in FY2011/12: about 2 percent of GDP (budget target was about 6 percent).\n  - Non-mineral primary deficit declined from about 24 percent of non-mineral GDP in FY2010/11 to 17 percent in FY2011/12.\n  - Adjustment reflected sharp decline in government spending driven by:\n    - Savings in the education budget from increased local tertiary admissions, rationalization of student allowances, and improved administration.\n    - Better prioritization of development spending.\n  - Higher-than-expected customs revenue from the Southern Africa Customs Union (SACU) Common Revenue Pool contributed to the lower deficit.\n- External position:\n  - Overall external position strengthened in 2011 with annual export growth (in dollar terms) of about 40 percent.\n  - Exports grew faster than imports, turning the current account deficit into a surplus for the first time in the last three years.\n  - Diamond exports benefited from higher diamond prices in H1 2011, offsetting poor performance of copper and nickel exports.\n  - Non-mining exports: plastic products and textile exports surged in 2011; exports of meat and meat products fell due to EU export restrictions.\n  - The real effective exchange rate lost ground slightly over the last 12 months."
    },
    {
      "heading": "Outlook and Risks",
      "content": "- Growth and inflation projections:\n  - 2012: Growth likely to moderate; medium-term real GDP growth expected to stabilize at around 4.5 percent.\n  - Inflation expected to converge to the upper band of the Bank of Botswana’s medium-term objective range in 2013.\n- Fiscal and external projections:\n  - Projected fiscal surpluses in FY2012/13 and beyond.\n  - Current account surplus forecast to stabilize at about 2 percent of GDP.\n- Main risks:\n  - Highly uncertain global environment poses significant downside risks to mineral export demand.\n  - In a more adverse global scenario, authorities should allow automatic stabilizers to operate on the revenue side."
    },
    {
      "heading": "Executive Board Assessment — Key Recommendations and Judgments",
      "content": "- Overall judgment:\n  - The current fragile global economic environment is likely to delay Botswana’s recovery and trend growth will likely moderate over the medium term as diamond-based wealth effects fade.\n  - Authorities’ policy mix of fiscal restraint and an accommodative monetary stance is appropriate under current conditions.\n- Fiscal policy recommendations:\n  - Bolder measures required to achieve targeted reduction in the wage bill; suggested measures include:\n    - Streamlining the system of non-wage payments.\n    - Rationalizing the size and structure of government.\n    - Tightening the link between pay and performance.\n    - Strengthening payroll systems.\n    - Revising the wage scale.\n  - Broadening the tax base should be integral to fiscal consolidation; staff strongly recommends conducting a full-fledged study on tax expenditure to provide a foundation for streamlining tax incentives.\n  - Adopt a fiscal anchor that delinks the fiscal stance from volatile mineral revenue and SACU receipts; staff reiterates the need to adopt either the non-mineral primary balance or the structural fiscal balance (à la Chile).\n- Monetary and liquidity management:\n  - Support for Bank of Botswana’s liquidity management reform; enhanced issuance of treasury securities recommended to improve coordination of monetary operations and debt management.\n- Structural and development priorities:\n  - Address long-term development and structural challenges to move to a higher level of development.\n  - Complement redistributive fiscal policy with policies that tackle inequality by fostering effective investment in education and health and enhancing financial inclusion.\n  - Public sector employment reform is critical to enhancing job creation economy-wide.\n  - Foster deeper institutional and capacity development as part of the reform agenda to support long-term growth.\n- Exchange rate assessment:\n  - Staff judges the level of the real effective exchange rate as broadly in line with fundamentals from a medium-term perspective."
    },
    {
      "heading": "Selected Economic and Financial Indicators, 2009–2012 (annual percentage change, unless otherwise indicated)",
      "content": "- National income and prices:\n  - Real GDP: 2009: -4.7; 2010: 7.0; 2011: 5.1; 2012 Prel./Proj.: 3.8\n  - Mineral: 2009: -20.7; 2010: 6.7; 2011: -1.3; 2012 Prel./Proj.: 2.7\n  - Non-mineral 2: 2009: 4.6; 2010: 5.2; 2011: 7.3; 2012 Prel./Proj.: 3.9\n  - Consumer prices (average): 2009: 8.1; 2010: 6.9; 2011: 8.5; 2012 Prel./Proj.: 7.5\n  - Consumer prices (end of period): 2009: 5.8; 2010: 7.4; 2011: 9.2; 2012 Prel./Proj.: 6.4\n  - Nominal GDP (billions of pula) 1: 2009: 82.5; 2010: 101.3; 2011: 120.5; 2012 Prel./Proj.: 139.2\n  - Diamond production (millions of carats): 2009: 17.7; 2010: 22.8; 2011: 23.0; 2012 Prel./Proj.: 23.5\n- External sector:\n  - Exports of goods and services, f.o.b. (US$): 2009: -34.0; 2010: 30.3; 2011: 39.1; 2012 Prel./Proj.: -2.9\n    - Diamonds: 2009: -30.3; 2010: 49.9; 2011: 38.3; 2012 Prel./Proj.: 3.4\n  - Imports of goods and services, f.o.b. (US$): 2009: -4.3; 2010: 21.1; 2011: 25.1; 2012 Prel./Proj.: -1.9\n- Money and banking (percentage change with respect to M2 at the beginning of the period):\n  - Net foreign assets: 2009: -34.3; 2010: -17.5; 2011: 25.4; 2012 Prel./Proj.: 37.5\n  - Net domestic assets: 2009: 33.0; 2010: 29.9; 2011: -21.0; 2012 Prel./Proj.: -30.8\n  - Broad money (M2): 2009: 12.4; 2010: 4.3; 2011: 6.8\n  - Velocity (nonmineral GDP relative to M3): 2009: 1.6; 2010: 1.8; 2011: 1.9\n  - Credit to the private sector: 2009: 6.1; 2010: 11.8\n- Central government finances (in percent of GDP, unless otherwise indicated) 3:\n  - Total revenue and grants: 2009: 33.3; 2010: 29.4; 2011: 29.5\n  - Total expenditure and net lending: 2009: 45.3; 2010: 36.2; 2011: 31.7; 2012 Prel./Proj.: 29.2\n  - Overall balance (deficit –): 2009: -12.0; 2010: -6.8; 2011: -2.2; 2012 Prel./Proj.: 0.3\n  - Nonmineral primary balance4: 2009: -30.4; 2010: -23.6; 2011: -17.2; 2012 Prel./Proj.: -10.9\n  - Total central government debt: 2009: 15.8; 2010: 17.6; 2011: 16.7; 2012 Prel./Proj.: 14.9\n- Current account balance: 2009: -5.2; 2010: -2.0; 2011: 3.0; 2012 Prel./Proj.: (not separately listed)\n- Balance of payments: 2009: -5.5; 2010: -6.4; 2011: 2.8; 2012 Prel./Proj.: 5.5\n- External public debt 5 (in percent of GDP): 2009: 13.0; 2010: 10.9; 2011: 11.0\n- Reserves (in millions of US$, unless otherwise indicated):\n  - Change in reserves (increase –): 2009: 447; 2010: 786; 2011: -503; 2012 Prel./Proj.: -987\n  - Gross official reserves (end of period): 2009: 8,669; 2010: 7,883; 2011: 8,386; 2012 Prel./Proj.: 9,373\n  - In months of imports of goods and services 6: 2009: 17.3; 2010: 12.6\n  - In percent of GDP: 2009: 74.8; 2010: 52.9; 2011: 53.2\n\nSource: Public Information Notice: IMF Executive Board Concludes 2012 Article IV Consultation with Botswana, August 1, 2012.\n\n---\n\n\n References\n\n- Botswana and the IMF\n- Public Information Notices\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn1291"
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    "Published: August 1, 2012",
    "Publication: Public Information Notice (PIN) No. 12/91; concluded on July 25, 2012 under IMF lapse of time procedures.",
    "Recent performance:",
    "Inflation dynamics:",
    "Financial market conditions:",
    "Policy and regulatory issues:",
    "Fiscal outturns:",
    "External position:",
    "Growth and inflation projections:",
    "Fiscal and external projections:",
    "Main risks:",
    "Overall judgment:",
    "Fiscal policy recommendations:",
    "Monetary and liquidity management:",
    "Structural and development priorities:",
    "Exchange rate assessment:",
    "National income and prices:",
    "External sector:",
    "Money and banking (percentage change with respect to M2 at the beginning of the period):",
    "Central government finances (in percent of GDP, unless otherwise indicated) 3:",
    "Current account balance: 2009: -5.2; 2010: -2.0; 2011: 3.0; 2012 Prel./Proj.: (not separately listed)",
    "Balance of payments: 2009: -5.5; 2010: -6.4; 2011: 2.8; 2012 Prel./Proj.: 5.5",
    "External public debt 5 (in percent of GDP): 2009: 13.0; 2010: 10.9; 2011: 11.0",
    "Reserves (in millions of US$, unless otherwise indicated):",
    "[Botswana and the IMF](http://www.imf.org/external/country/BWA/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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