{ "title": "Natural Resources and Development: Confronting Emerging Challenges in Botswana, Public Lecture at the Bank of Botswana By Mr. Naoyuki Shinohara, Deputy Managing Director, International Monetary Fund", "publication": "IMF News, March 30, 2011", "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp033011", "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp033011", "overlayPath": "/en/news/articles/2015/09/28/04/53/sp033011/index.md", "summary": "Global recovery expected to proceed, led by emerging markets, but will remain a multi-speed recovery with considerable downside risks.", "authors": [ "Mr. Naoyuki Shinohara" ], "publishDate": "2011-03-30", "sections": [ { "heading": "Global economic outlook and implications for Botswana", "content": "- Global recovery expected to proceed, led by emerging markets, but will remain a multi-speed recovery with considerable downside risks.\n- Advanced economies: growth subdued and unemployment still high; sovereign and banking sector risks in the euro area intensifying financial-sector strains.\n- Middle East and North Africa instability contributing to rising oil prices; persistent higher oil prices could pose a risk to the global recovery.\n- Emerging economies: activity remains buoyant in many, but overheating and inflationary pressures exist in some, exacerbated by large capital flows and rising commodity prices.\n- IMF short-term outlook for sub-Saharan Africa:\n - Following a sharp drop in the growth rate to 2½ percent in 2009, the region’s economy expanded by 5 percent in 2010 and is projected to grow by about 5½ percent this year.\n - The region’s outlook is bi-polar: low-income countries set to return to 2000–08 average growth rates; middle-income countries expected to exhibit sizable output gaps.\n - Commodity exporters: recent commodity price increases expected to persist in the near term; net oil importers face significant external financing needs if oil prices remain elevated.\n- Policy guidance for price shocks:\n - First-best response: allow pass-through of international prices to domestic prices and provide targeted support to the most vulnerable (subsidies, income support, direct provision of food).\n - Where identification of needy is difficult, consider other targeted relief (e.g., temporary lowering of import taxes on essential staple foods).\n - Monetary policy: accommodate first-round effects and tighten if second-round effects lead to generalized price pressures.\n - Rebuild policy buffers, sustain reform efforts, and maintain macroeconomic stability and growth momentum." }, { "heading": "Botswana: recent performance and structural challenges", "content": "- Botswana transformed from one of the poorest countries at independence into an upper middle-income country through sound macroeconomic policies, good governance, and high public investment.\n- The 2008-09 global financial crisis hit Botswana hard, but rapid and appropriate policy response mitigated broader economic effects.\n- Trend growth in Botswana has slowed in the last decade:\n - Declining contribution of productivity growth to overall economic growth since 2000, coinciding with deceleration in diamond extraction.\n - Decline in the contribution of labor to growth.\n- Botswana’s historical growth strategy centered on capital deepening via public spending:\n - After years of high public investment, infrastructure gap narrowed considerably.\n - Diminishing returns on public expenditure have set in; outcomes (e.g., educational attainment) often poorer than in comparable middle-income countries despite high spending.\n- Key policy question: how to transform the economic structure to sustain high growth and employment as natural-resource-driven success fades." }, { "heading": "Pillar I — Reforms to foster private sector-led growth and diversification", "content": "- Diagnostic findings:\n - Private sector productivity potential constrained by public-sector environment and cost of doing business.\n - October 2010 National Business Confederation report: need to improve competitiveness, facilitate cross-border trade, and simplify/reduce procedures to start a business.\n - Foreign direct investment currently concentrated in the diamond sector.\n - Diamond exports expected to plateau over the next decade or thereabout; risk of persistent current account deficits unless non-diamond exports rise substantially.\n- Policy recommendations:\n - Preserve macroeconomic stability and implement regulatory and structural reforms to lower the cost of doing business.\n - Consider public-private partnerships where appropriate, ensuring legal and regulatory frameworks mitigate fiscal risks and maximize value for money (energy sector PPPs being considered).\n - Develop financial markets to improve capital allocation and expand access for the large “un-banked” population; nonbank financial institutions could play an important role.\n - Create futures and forward markets to meet pension funds’ hedging needs and establish a benchmark yield curve to support regional financial center ambitions.\n - Target diversification into activities with output and price trends uncorrelated with diamonds; government focus on IT services and regional financial center development noted as well-placed.\n - Attract FDI to tourism, trade, telecommunication, and non-diamond sectors by lowering business costs and linking to multinational supply chains tailored to local conditions." }, { "heading": "Pillar II — Tackling high unemployment, income inequality, and poverty", "content": "- Key challenges:\n - High unemployment linked to capital-intensive mining sector and “Dutch disease” effects; job creation insufficient to absorb growing labor force.\n - Skills mismatch: key skills still imported; local workforce skills do not fully match labor-market demands.\n - Poverty and inequality:\n - According to the last Household and Income Survey, about 30 percent of the population lives below the country-specific poverty line.\n - Some estimates of the Gini-index suggest high income inequality.\n - Poverty increases vulnerability to shocks; rising food prices hit the poor disproportionately and can have long-lasting effects.\n- Policy recommendations:\n - Foster private sector growth and diversification to increase productivity and investment in labor-intensive non-mining industries.\n - Improve education system to produce workers with in-demand skills; invest in education and skills training to maximize returns on public spending.\n - Attract FDI into non-diamond sectors and integrate into multinational supply chains to create employment.\n - Implement a combination of carefully designed initiatives and faster growth—no single measure is sufficient to address unemployment.\n - Consider fiscal resources to ameliorate surge in food and fuel prices’ impact on vulnerable groups, ensuring coherent and effective social safety nets for targeting and effectiveness.\n- Ongoing government measures noted:\n - Plans to create a Human Resource Development Council in 2012 to improve skills development.\n - Establishment of a Labor Market Observatory to enhance dissemination of labor market information and reduce frictional unemployment.\n - Shift in policy emphasis from poverty reduction to poverty eradication.\n - Botswana Core Welfare Indicator Survey expected in May 2011 to assess poverty levels and assist government decision-making." }, { "heading": "Pillar III — Strengthening fiscal institutions, fiscal rules, and asset-liability management", "content": "- Rationale:\n - Natural resource-rich economies face volatile commodity prices and political pressures to spend windfall revenues, leading to pro-cyclical fiscal policies and macroeconomic volatility.\n - Strong fiscal institutions help prevent excess spending in booms and preserve resources for downturns.\n- Current fiscal framework and recommendations:\n - Key fiscal objective: achieve an overall budget balance in Fiscal Year 2012–13.\n - IMF suggestion: give greater prominence to the non-mining fiscal balance in fiscal policy formulation.\n - Decomposing overall balance into mining and non-mining balances is critical to interpret fiscal developments and macroeconomic impact.\n - Overall fiscal balance may not reliably indicate impact on domestic demand or government adjustment effort.\n - Examples: Norway focuses on the non-oil balance; Chile uses a structural balance rule to insulate spending from copper price fluctuations.\n - Botswana introduced a fiscal rule limiting government expenditures to 40 percent of GDP.\n - Advantages: simple and signals balance between public spending and available resources.\n - Drawback: can be procyclical because rising diamond prices increase GDP and allow higher spending.\n - Consider complementing with a cap on real spending growth (examples cited: Australia and The Netherlands) to reduce procyclicality.\n - Critical components of a fiscal policy rule:\n - (i) a clear and, as simple as possible, set of operating fiscal variables;\n - (ii) sufficient flexibility to respond to unanticipated shocks so the rule does not exacerbate adverse macroeconomic impacts while avoiding procyclicality.\n - Recommendation: adopt a medium-term expenditure framework to connect annual budgets to longer-term policies; tailor to Botswana’s public financial management reforms and guide restrained spending given commodity-price uncertainty.\n- Asset-liability management:\n - Resource revenue flows create challenges and opportunities for asset-liability management.\n - Botswana’s accumulated financial assets divided into:\n - Liquidity portfolio: buffer against short-term trade and capital-account fluctuations.\n - Pula Fund: designed to contribute to long-term development by diversifying income away from commodities into global financial assets.\n - Botswana does not have a formal sovereign wealth fund but has a good reputation for managing accumulated financial assets.\n - Botswana has begun to contract external debt; access to debt financing options exists.\n - Recommendation: establish a comprehensive framework for public-sector asset and liability management.\n - IMF support: plan to establish a multi donor trust fund to provide natural resource-rich countries with technical assistance on asset-liability management and related issues." }, { "heading": "Closing observations", "content": "- The challenges of sustaining growth, diversifying the economy, tackling unemployment and inequality, and strengthening fiscal institutions are serious but not insurmountable.\n- Government plans referenced: the 10th National Development Plan (NDP10) and the Fiscal Year 2011 to 12 Budget Speech by Minister Matambo outline responses to these challenges.\n- IMF intends to contribute through surveillance work and technical assistance to help realize Botswana’s Vision.\n\nMarch 30, 2011 — As prepared for delivery\n\n---\n\n Content in this bundle\n\n- 033011pdf (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- People's Republic of China and the IMF\n- Botswana and the IMF\n- Chile and the IMF\n- India and the IMF\n- Speeches\n- Naoyuki Shinohara\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp033011" } ], "bullets": [ "[Markdown version](/en/news/articles/2015/09/28/04/53/sp033011/index.md)", "[Structured JSON version](/en/news/articles/2015/09/28/04/53/sp033011/index.json)", "[Bundle manifest](/en/news/articles/2015/09/28/04/53/sp033011/bundle-manifest.json)", "Authors: Mr. Naoyuki Shinohara", "Published: March 30, 2011", "Global recovery expected to proceed, led by emerging markets, but will remain a multi-speed recovery with considerable downside risks.", "Advanced economies: growth subdued and unemployment still high; sovereign and banking sector risks in the euro area intensifying financial-sector strains.", "Middle East and North Africa instability contributing to rising oil prices; persistent higher oil prices could pose a risk to the global recovery.", "Emerging economies: activity remains buoyant in many, but overheating and inflationary pressures exist in some, exacerbated by large capital flows and rising commodity prices.", "IMF short-term outlook for sub-Saharan Africa:", "Policy guidance for price shocks:", "Botswana transformed from one of the poorest countries at independence into an upper middle-income country through sound macroeconomic policies, good governance, and high public investment.", "The 2008-09 global financial crisis hit Botswana hard, but rapid and appropriate policy response mitigated broader economic effects.", "Trend growth in Botswana has slowed in the last decade:", "Botswana’s historical growth strategy centered on capital deepening via public spending:", "Key policy question: how to transform the economic structure to sustain high growth and employment as natural-resource-driven success fades.", "Diagnostic findings:", "Policy recommendations:", "Key challenges:", "Policy recommendations:", "Ongoing government measures noted:", "Rationale:", "Current fiscal framework and recommendations:", "Asset-liability management:", "The challenges of sustaining growth, diversifying the economy, tackling unemployment and inequality, and strengthening fiscal institutions are serious but not insurmountable.", "Government plans referenced: the 10th National Development Plan (NDP10) and the Fiscal Year 2011 to 12 Budget Speech by Minister Matambo outline responses to these challenges.", "IMF intends to contribute through surveillance work and technical assistance to help realize Botswana’s Vision.", "[033011pdf (PDF)](/-/media/websites/imf/imported/external/np/speeches/2011/pdfs/_033011pdf.pdf){rel=\"external\" type=\"application/pdf\"}", "[People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)", "[Botswana and the IMF](http://www.imf.org/external/country/BWA/index.htm)", "[Chile and the IMF](http://www.imf.org/external/country/CHL/index.htm)", "[India and the IMF](http://www.imf.org/external/country/IND/index.htm)", "[Speeches](https://www.imf.org/en/news/searchnews)", "[Naoyuki Shinohara](https://www.imf.org/external/np/omd/bios/ns.htm)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "related": [ { "title": "033011pdf", "role": "document", "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported/external/np/speeches/2011/pdfs/_033011pdf.pdf", "binary": { "path": "/-/media/websites/imf/imported/external/np/speeches/2011/pdfs/_033011pdf.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/news/articles/2015/09/28/04/53/sp033011/index.md", "json": "/en/news/articles/2015/09/28/04/53/sp033011/index.json", "bundleManifest": "/en/news/articles/2015/09/28/04/53/sp033011/bundle-manifest.json" }, "generatedAtUtc": "2026-09-27T09:36:59.977Z" }