IMF Staff Completes 2024 Article IV Mission to Botswana

IMF News, July 12, 2024

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IMF team led by Mr. Luc Eyraud, Division Chief in the IMF African Department and Mission Chief for the Republic of Botswana, visited Gaborone and held discussions from July 2-12, 2024.
Press Release No. 24/270.

Growth slowed from 5.5 percent in 2022 to 2.7 percent in 2023, below the long-run potential growth of 4 percent.
Growth is expected to decelerate further in 2024, with growth projected at 1 percent.
Medium-term growth is expected to converge towards 4 percent as diamond mining recovers.
Main near-term drag: sharp decline in diamond trading and mining activities due to decreased global demand for rough diamonds.
Partial offset to the slowdown: construction projects financed by fiscal expansion.

Inflation peaked at 14.6 percent in August 2022 and declined rapidly thereafter.
Inflation has remained below the ceiling of Bank of Botswana’s (BoB) objective range since spring 2023.
BoB objective range: 3 – 6 percent.
Inflation is expected to remain within the BoB’s 3 – 6 percent objective range over the medium term.
BoB has cut its policy rate twice by a cumulative 50 basis points since December 2023, following a 151 basis points increase during 2022.
Key drivers of inflation decline: falling oil prices and easing international oil and food prices.

FY2022: budget balance.
FY2023: estimated deficit of 4.7 percent of GDP, reflecting significant fiscal relaxation due to a decline in mineral revenues and higher capital spending.
Public debt: 20 percent of GDP.
Government deposits at the central bank have been significantly depleted.
FY2024: fiscal deficit projected to widen further to 6 percent of GDP, reflecting a further decline in mineral revenues and higher capital expenditure.
Authorities’ plan: achieve a fiscal surplus by FY2026.
IMF recommendations:
- Some fiscal relaxation is warranted in 2024 given the fall in mineral revenues.
- Execution of the ambitious capital budget should be slowed down to contain deterioration of the deficit and prioritize projects with the highest returns.
- Medium-term consolidation, in line with the authorities’ plan to achieve a fiscal surplus by FY2026, is critical to stop the depletion of financial buffers, build resilience against shocks, and preserve fiscal sustainability.

Despite the weak diamond market, the external position improved in 2023 because of strong customs union revenues.
Current account deficit is projected to widen in 2024 given weak diamond exports, followed by a rebound next year.
Rebound in the external position is predicated on a recovery in the diamond market and continued elevated customs union transfers.

Financial sector described as sound and stable despite the economic downturn.
IMF recommends faster implementation of 2023 Financial Sector Assessment Program recommendations and operationalization of new regulations and laws to further reduce financial sector risks.
To accelerate growth and job creation, policy priorities include:
- Fundamental shift towards greater private sector participation.
- More diversified export base.
- More efficient public sector.
- Reform of state-owned enterprises.
- Improved infrastructure for doing business (internet, energy, logistics).
- Trade facilitation measures.

IMF mission thanked the authorities for the highly constructive dialogue during the Article IV consultation.

IMF Staff Completes 2024 Article IV Mission to Botswana — Press Release No. 24/270 (July 12, 2024)