Botswana: Staff Report for the 2014 Article IV Consultation

IMF Staff Country Reports, July 15, 2014

Source details

Botswana benefited from "good governance and prudent macroeconomic and natural resources management" that produced an "impressive increase in the GDP per capita during the last three decades."
Recent slowdown: trend growth has softened in recent years, reflecting "the decline in the contribution of total factor productivity (TFP) to growth."
Policy implication: the TFP slowdown "calls for policies to reduce structural bottlenecks in the economy."
Context: Botswana is characterized alongside other "small middle-income countries (SMICs) in the region."

Macro balances: "Botswana’s economy remains broadly internally and externally balanced."
Policy stance: "the authorities’ near-term macroeconomic policy mix is appropriate."
Growth projection: "Output growth is expected to slowdown in 2014 reflecting partly weaknesses in the non-mineral sector."
Inflation outlook: inflation is expected to remain within the Bank of Botswana’s (BoB) medium-term objective range of "3-6 percent."

Staff position: "Staff supports the FY2014/15 budget, which reins in unproductive current spending, while protecting growth-promoting capital spending."
Medium-term consolidation: achieving the budget's medium-term fiscal consolidation objectives "would require articulating concrete measures to reduce the wage bill relative to GDP and broaden the revenue base."
Wage bill: progress "remains modest" toward reducing the wage bill relative to GDP.

System health: "Botswana’s banking system is well-capitalized and profitable with relatively low nonperforming loans."
Household credit risk: "Although from a low base, credit growth to households continues to expand at a high rate, which poses potential vulnerabilities for the financial sector."
Policy recommendation: "staff recommends that macro prudential measures be considered to temper the rate of growth of household borrowing."
Development goals: staff "welcomes the government’s emphasis on enhancing greater financial deepening and inclusion, while preserving the stability of the financial system."

Core challenge: to return to strong growth and accelerate convergence to higher income levels, Botswana needs policies to "reinvigorate TFP growth."
Priority measures:
- "Improving the quality of public spending, notably in public investment projects and education" to transform diamond wealth into sustainable assets.
- Continue efforts to "improve the country’s competitiveness, including through reducing the regulatory burden on firms."

Broad agreement: there is "broad agreement between the Fund and the authorities on the macroeconomic policy stance and structural reform policy priorities."
State-owned enterprises (SOEs): consistent with staff advice, the FY2014/15 budget "outlined a framework to reduce the burden of loss-making state-owned enterprises on fiscal resources and propel them toward commercial viability."
Medium-term projections: the budget "includes medium-term projections of government accounts, as recommended by staff during past consultations."

Source: Botswana: Staff Report for the 2014 Article IV Consultation, July 15, 2014.

1. Botswana: Long-Term Economic Developments
- 1. Botswana: Long-Term Economic Developments (Markdown version)
- 1. Botswana: Long-Term Economic Developments (PDF)