## IMF Staff Completes 2019 Article IV Mission to Botswana

_IMF News, November 26, 2019_

## Source details

**Canonical URL:** [IMF Staff Completes 2019 Article IV Mission to Botswana](https://www.imf.org/en/news/articles/2019/11/26/pr19436-botswana-imf-staff-completes-2019-article-iv-mission)

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## Bibliographic details
- Published: November 26, 2019

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### Macroeconomic outlook
- Growth is expected to slow to about 3½ percent in 2019, due to weaknesses in the diamond market, a severe drought, and slower growth in neighboring countries.
- Under staff’s baseline scenario, growth is expected to recover to 4.2 percent in 2020 as the diamond market normalizes and copper production comes into stream, and hover around 4 percent thereafter.
- Inflation will remain low in 2019 and "will accelerate amid accommodative monetary policy but remain in the bottom half of the Bank of Botswana (BoB) target band."
- The current account is projected to move to negative territory, contributing to a decline in reserves.

### Fiscal position and recommendations
- The fiscal deficit is expected to reach 5¾ percent of GDP in 2019 due to lower-than-expected revenue, higher-than-expected increase in public wages and other recurrent spending.
- The mission supports the authorities’ objective to return to a fiscal surplus over the medium term.
- Fiscal consolidation should start in FY2020, supported by both revenue and expenditure measures beyond those considered by the authorities.
- The consolidation needs to be carefully calibrated to minimize the impact on growth, competitiveness, and the most vulnerable.

Recommended fiscal reforms (as stated by staff):
- i) modifying the fiscal rule to prevent further erosions in buffers and achieve Botswana’s intergenerational equity objectives;
- ii) greater revenue mobilization through broadening the tax base and advancing tax reform;
- iii) public financial management reforms to enhancing the efficiency of spending;
- iv) reforming parastatals and other extra-budgetary entities, including by enforcing compliance to best governance practices and strengthening their monitoring and accountability;
- v) revamping the debt management framework.

### Monetary and exchange rate policy
- "The accommodative monetary policy stance is appropriate and consistent with the objective of maintaining a stable real exchange rate against the currencies in the basket."
- The BoB should use the flexibility afforded by its current exchange rate regime to help the economy adjust to the persistent decline in mineral and trade resources and structural transformation.
- Recommended actions to strengthen monetary transmission and deepen the domestic financial market:
  - further developing the secondary market for government securities;
  - leveraging Fintech;
  - facilitating the attachment of collateral;
  - improving credit information.

### Financial sector and buffers
- Despite challenges, "the banking sector remains well capitalized and liquidity has improved."
- Fiscal consolidation would contribute to a gradual rebuilding of buffers over the medium term.

### Structural reforms and growth model shift
- Achieving the authorities’ objectives of moving to a knowledge-based economy and to high-income status by 2036 requires changing the growth model from a mining and government-led model to private sector and export-driven.
- Supply-side policy priorities:
  - further improving the business environment;
  - redesigning industrial policies to foster competition and competitiveness;
  - reducing the government footprint in the economy;
  - prioritizing investment in human capital;
  - upgrading digital skills and deepening Information and Communications Technology penetration;
  - promoting integration in regional and global value chains.
- Strategic deficiencies in the Anti-Money Laundering/Combating the Financing of Terrorism framework should be addressed.

### Risks and scenario drivers
- Downside risks cited:
  - a global rise in protectionism;
  - a faster-than-anticipated slowdown in China and in the euro area;
  - continued slow growth in South Africa;
  - medium-term vulnerability to volatile mineral revenue and SACU transfers and to climate shocks.
- Upside risks could stem from higher-than-expected mining production (e.g. coal).

*IMF Communications Department, November 26, 2019.*

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## References

- [Botswana and the IMF](http://www.imf.org/external/country/BWA/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
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- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2019/11/26/pr19436-botswana-imf-staff-completes-2019-article-iv-mission_