IMF Executive Board Concludes 2019 Article IV Consultation with Botswana

IMF News, March 27, 2020

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Published: March 27, 2020

Staff report and timing

The Staff Report was prepared by an IMF staff team for the Executive Board’s consideration on March 9.
The report reflects discussions with the Botswana authorities in November 2019 and is based on the information available as of February 21, 2020.
The report was prepared before COVID-19 became a global pandemic and does not reflect the implications of the COVID-19 outbreak; staff noted the outbreak has greatly amplified uncertainty and downside risks and that staff is closely monitoring the situation and will continue to assess its impact and related policy responses.
The attached documents include preliminary staff recommendations with regard to the COVID-19 global outbreak.

Recent economic developments and outlook

Persistently lower mineral revenues and SACU proceeds, and delays in needed fiscal adjustment (including a large increase in the wage bill), contributed to a moderately overvalued exchange rate and eroded buffers and savings.
A severe drought, along with the revenue and fiscal pressures, contributed to slower real GDP growth and deterioration in fiscal and external balances in 2019.
Growth projections:
- Near-term: Growth is expected to pick up mostly driven by the mining sector.
- Medium-term: Absent bold fiscal and structural reforms, growth will remain around 4 percent, which is insufficient to achieve the authorities’ objectives of reducing unemployment and transitioning to high-income status.
Inflation is expected to remain within the Bank of Botswana’s target range.
The outlook is subject to significant downside risks, including potential disruptions from COVID-19 (affecting Botswana via diamonds and SACU revenue) and, over the medium and longer term, climate change.

Fiscal policy and public finances

In the FY2020 budget (the first after the October 2019 general election), the authorities envisage resuming fiscal consolidation mostly through:
- Reprioritization of capital spending.
- Cuts in non-priority recurrent expenditures.
- Increases in fees.
- The public wage bill will continue to increase.
The budget acknowledged the need to transform the economy toward a private sector, export-led and knowledge-based growth model, increase spending efficiency, and align human and physical capital with the transformation agenda.
Executive Directors’ fiscal guidance and observations:
- Noted expansionary fiscal policy in the face of persistently lower diamond and trade revenues widened the fiscal deficit, eroding buffers and weakening the external position.
- Highlighted the need to rebuild buffers to guard against future shocks (global growth slowdown, coronavirus-related spillovers, climate change, natural disasters).
- Welcomed planned gradual fiscal consolidation and stressed the need to start without delay.
- Stressed careful calibration of adjustment to minimize impact on competitiveness and growth and to protect the most vulnerable.
- Encouraged mobilizing revenue by broadening the tax base, reducing exemptions, and advancing tax reform.
- Urged containing the wage bill to protect efficient capital and social spending.
- Commended focus on increasing spending efficiency through public investment management and parastatal reforms.
- Recommended strengthening the fiscal framework to ensure intergenerational equity and smooth cyclical fluctuations; suggested defining a medium-term anchor and modifying the existing fiscal rule and noted authorities’ interest in Fund technical assistance.

Monetary policy and financial sector

Directors agreed the current accommodative monetary policy stance is appropriate and welcomed authorities’ readiness to loosen further if needed.
Encouraged using flexibility within the current exchange rate framework to cushion against external shocks and help adjust to persistent declines in mineral receipts and SACU revenues.
Urged further strengthening of monetary transmission by deepening domestic financial markets.
Emphasized need to monitor household balance sheet risks and employ macroprudential tools as necessary.

Structural reforms and resilience

Directors encouraged acceleration of supply-side reforms to promote private sector activity and economic diversification, building on recent business environment improvements.
Recommendations to foster competitiveness and boost jobs:
- Reduce the government footprint in the economy.
- Further enhance human capital.
- Promote greater integration into regional and global value chains.
Emphasized importance of enhancing resilience to climate change.
Took positive note of Botswana’s track record of good governance and encouraged continued efforts to strengthen fiscal transparency and address remaining deficiencies identified in the 2017 AML/CFT evaluation.

Key statistics and projections (as presented in Table 1)

Real GDP (annual percent change): 2014: 4.1; 2015: -1.7; 2016: 4.3; 2017: 2.9; 2018: 4.5; 2019: 3.4; 2020 (prel.): 4.4; 2021 (proj.): 5.6; 2022 (proj.): 3.8; 2023 (proj.): 3.9.
Mineral (annual percent change): 2014: 0.5; 2015: -19.6; 2016: -3.5; 2017: -11.1; 2018: 7.4; 2019: -1.1; 2020: 7.1; 2021: 26.0; 2022: 5.1; 2023: 4.0; 2024: 2.7; 2025: 0.4.
Nonmineral (annual percent change): 2014: 4.9; 2015: 1.7; 2016: 5.5; 2017: 4.8; 2018: 3.3; 2019: 3.6.
GDP per capita (US dollars): 2014: 7,498; 2015: 6,539; 2016: 6,958; 2017: 7,584; 2018: 7,994; 2019: ….
Consumer prices (average): 2014: 3.1; 2015: 2.8; 2016: 3.2; 2017: 3.5.
Diamond production (millions of carats): 2014: 24.7; 2015: 20.8; 2016: 20.9; 2017: 22.9; 2018: 24.4; 2019: 24.0; 2020: 25.8; 2021: 25.3; 2022: 26.8; 2023: 27.5.
Monetary Base (annual percent change): 2014: -8.5; 2015: 18.6; 2016: 3.7; 2017: -13.7; 2018: 17.5; 2019: 9.4; 2020: 7.7; 2021: 7.0; 2022: 7.8; 2023: 8.0; 2024: 8.3; 2025: 8.5.
Broad money (M2) (annual percent change): 2014: 4.6; 2015: 19.9; 2016: 5.4.
Credit to the private sector (annual percent change): 2014: 13.7; 2015: 9.0; 2016: 5.3; 2017: 6.6; 2018: 7.9; 2019: 7.3; 2020: 8.1; 2021: 9.1.
Gross investment (including change in inventories) (percent of GDP): 2014: 28.2; 2015: 32.6; 2016: 28.6; 2017: 29.4; 2018: 34.5; 2019: 30.8; 2020: 32.3; 2021: 31.9; 2022: 30.9; 2023: 31.0.
Public investment (percent of GDP): 2014: 8.2; 2015: 8.8; 2016: 5.0; 2017: 4.2.
Private investment (percent of GDP): 2014: 20.0; 2015: 23.8; 2016: 21.4; 2017: 27.9; 2018: 25.2; 2019: 27.2; 2020: 27.1; 2021: 26.2; 2022: 26.5; 2023: 26.7.
Gross savings (percent of GDP): 2014: 42.6; 2015: 39.5; 2016: 34.6; 2017: 36.4; 2018: 31.5; 2019: 30.2; 2020: 28.7; 2021: 31.8; 2022: 31.2; 2023: 31.7.
(Additional savings-related row values shown in table): 2014: 19.8; 2015: 16.1; 2016: 16.2; 2017: 15.2; 2018: 12.1; 2019: 9.2; 2020: 10.2; 2021: 10.8; 2022: 11.1; 2023: 10.7; 2024: 11.5.
(Another savings-related row values shown in table): 2014: 22.8; 2015: 23.4; 2016: 18.4; 2017: 21.2; 2018: 19.5; 2019: 21.0; 2020: 20.7; 2021: 20.5; 2022: 20.6.
Total revenue and grants (percent of GDP): 2014: 38.3; 2015: 33.2; 2016: 27.7; 2017: 25.5; 2018: 27.0; 2019: 25.9; 2020: 26.3; 2021: 26.1.
Total expenditure and net lending (percent of GDP): 2014: 34.7; 2015: 35.8; 2016: 32.5; 2017: 32.0; 2018: 31.3; 2019: 29.2; 2020: 28.1.
Overall balance (deficit –) (percent of GDP): 2014: -4.6; 2015: 0.6; 2016: -5.8; 2017: -3.1; 2018: -2.3; 2019: -1.3; 2020: -1.6; 2021: -0.5; 2022: 0.1.
Non-mineral primary balance (percent of GDP): 2014: -16.1; 2015: -18.1; 2016: -17.6; 2017: -14.3; 2018: -17.1; 2019: -15.4; 2020: -13.5; 2021: -12.8; 2022: -12.1; 2023: -11.2; 2024: -10.3; 2025: -9.3.
Total central government debt (percent of GDP): 2014: 22.6; 2015: 23.2; 2016: 21.3; 2017: 18.1; 2018: 18.9; 2019: 18.7; 2020: 16.7; 2021: 16.0; 2022: 15.5; 2023: 14.5; 2024: 13.3.
Exports of goods and services, f.o.b. (% change): 2014: -24.1; 2015: 14.0; 2016: -15.7; 2017: 9.8; 2018: -20.0; 2019: 25.0; 2020: 6.0; 2021: 7.6.
Exports—o/w diamonds (percent change rows): 2014: 10.4; 2015: -28.4; 2016: 24.6; 2017: 6.8; 2018: -24.9; 2019: -0.6; 2020: 2.5; 2021: 2.0.
Imports of goods and services, f.o.b. (% change): 2014: -2.1; 2015: -10.0; 2016: -14.6; 2017: 16.6; 2018: -3.8; 2019: 14.4; 2020: 1.6; 2021: 1.1.
Current account balance (percent of GDP): 2014: 2.2; 2015: 6.1; 2016: 2.1; 2017: -4.3; 2018: -0.8; 2019: -0.1; 2020: 0.8; 2021: 1.0.
Overall Balance (percent of GDP): 2014: -5.4; 2015: 1.8; 2016: -7.7; 2017: -1.9; 2018: -0.9; 2019: 0.0; 2020: 0.9; 2021: 1.3; 2022: 1.4.
Nominal effective exchange rate (2010=100): 2014: 94.8; 2015: 94.9; 2016: 95.1; 2017: 95.4; 2018: 95.5; 2019: (not shown beyond 2018).
Real effective exchange rate (2010=100): 2014: 104.3; 2015: 105.2; 2016: 104.8; 2017: 105.0; 2018: 105.1.
Terms of trade (2005=100): 2014: 165.7; 2015: 197.6; 2016: 176.1; 2017: 160.1; 2018: 147.2; 2019: 134.7; 2020: 132.5; 2021: 132.4; 2022: 132.3.
External public debt (percent of GDP): 2014: 17.2; 2015: 14.3; 2016: 11.6; 2017: 11.9; 2018: 11.0; 2019: 10.0; 2020: 8.9; 2021: 6.7.
External public debt—o/w public and publicly guaranteed (percent of GDP): 2014: 4.7; 2015: 2.6; 2016: 2.4.
Gross official reserves (end of period, Millions of U.S. dollars): 2014: 8,323; 2015: 7,546; 2016: 7,189; 2017: 7,502; 2018: 6,657; 2019: 6,557; 2020: 6,182; 2021: 5,986; 2022: 5,994; 2023: 6,365; 2024: 6,673; 2025: 7,032.
Months of imports of goods and services: 2014: 12.3; 2015: 13.1; 2016: 13.9; 2017: 12.4; 2018: 11.4; 2019: 9.9; 2020: 8.6.
Months of non-diamond imports (selected years shown): 2014: 17.8; 2015: 16.4; 2016: 12.5; 2017: 10.9.

IMF Executive Board press release dated March 27, 2020; IMF staff report prepared for the Executive Board’s consideration on March 9, based on information as of February 21, 2020.