## IMF Staff Completes 2021 Article IV Mission to Botswana

_IMF News, April 9, 2021_

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## Bibliographic details
- Published: April 9, 2021

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### Mission details and context
- Press Release No. 21/103; April 9, 2021.
- IMF team led by Mr. Papa N’Diaye, Mission Chief for the Republic of Botswana and head of the African Department Regional Studies Division.
- Virtual Article IV discussions held from March 8-23, 2021.
- Statement reflects preliminary findings of IMF staff and does not necessarily represent the views of the IMF’s Executive Board.

### Economic impact of COVID-19 and near-term outlook
- The COVID-19 crisis severely impacted Botswana’s economy.
- Relief measures implemented by the authorities helped moderate the immediate effects of the pandemic.
- A recovery is underway but uncertainty is high; risks are dominated by the evolution of the pandemic and lower-than-expected diamond revenue.
- GDP growth expected at 8.3 percent in 2021, driven by:
  - a strong rebound in mining activity,
  - easing of restrictions on mobility,
  - the recent public wage increase.
- The current account deficit widened and foreign exchange reserves dropped further, though reserves remained above adequate levels.

### Priorities for pandemic response and recovery
- First priority: secure and ensure successful rollout of vaccines to a share of the population large enough to keep the pandemic under control and prevent health systems from being overwhelmed.
- Maintain targeted support to illiquid but solvent firms and affected households; make support state-contingent or conditional to reduce moral hazard.
- Given uncertainty on the health crisis and mineral revenue, recommended targeted support should be financed through both revenue and expenditure measures.

### Fiscal policy and structural reform recommendations
- Commendation for commitment to fiscal sustainability; recommendation to implement the adjustment planned in the draft FY2021/22 budget without further delays.
- Under the baseline, the envisaged pace and size of consolidation and shift in spending composition are appropriate.
- Fiscal reforms needed to lock-in consolidation efforts include:
  - civil service reform,
  - acceleration of plans to rationalize the parastatal sector and improve its governance,
  - strengthening of the fiscal framework to better anchor fiscal policy and increase credibility.
- Mobilizing domestic savings to finance the deficit requires coordinated efforts to deepen the bond market.
- Gradual reduction of the fiscal deficit will put the fiscal position on a sustainable footing while targeted investment and human capital development could raise productivity, create jobs, and help diversify the economy and revenue sources.
- Envisaged incentives for training and financial support to transformative sectors will facilitate reallocation of factors to new sectors.
- Caution that planned increases in the VAT rate and other taxes and fees could have regressive impacts; mitigation via targeted support is recommended.

### Monetary, exchange rate, and financial sector guidance
- Accommodative monetary policy stance is appropriate and should be maintained, while carefully monitoring:
  - second-round effects from supply shocks to inflation and inflation expectations,
  - credit developments.
- Mission welcomes the recently increased crawl rate of Botswana’s exchange rate peg; Bank of Botswana should use the flexibility afforded by its current exchange rate regime to:
  - help the economy adjust to shocks,
  - ensure external viability,
  - facilitate structural transformation.
- Authorities’ interventions helped mitigate immediate macro-financial risks; as the health crisis wanes:
  - COVID-19 related forbearance measures should be unwound,
  - adequate liquidity maintained in the domestic market,
  - risks closely monitored.
- Building on recent progress in addressing AML/CFT deficiencies is a priority.

### Economic Recovery and Transformation Plan (ERTP)
- Decisive implementation of the ERTP will diversify sources of growth and promote private sector activity, thereby creating jobs.
- Successful implementation requires continuous appraisal of existing sectoral programs, assessment and adaptation to changes in domestic and external markets, focusing on promising sectors, and tackling market and government failures.
- Key bottlenecks to address include small scale, mismatched skills, lack of competition, coordination failures, and information asymmetries.

### Concluding observations
- Botswana entered the COVID-19 crisis with larger buffers and lower public debt than other countries in sub-Saharan Africa (SSA), but significantly less than in the past.
- The country faced structural challenges, persistent negative external shocks, delays in adjustment, weakening international reserves, a weaker fiscal position, and high unemployment prior to the pandemic.
- The mission thanked the authorities for excellent discussions and support during the Article IV consultation.

*IMF Staff Completes 2021 Article IV Mission to Botswana — Press Release No. 21/103, April 9, 2021.*

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## References

- [IMF COVID-19 Hub](https://www.imf.org/en/Topics/imf-and-covid19)
- [Policy Tracker](https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19)
- [Financial Assistance](https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker)
- [Questions & Answers](https://www.imf.org/en/About/FAQ/imf-response-to-covid-19)
- [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)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2021/04/09/pr21013-botswana-imf-staff-completes-2021-article-iv-mission-to-botswana_