IMF Staff Country Reports

Botswana finds itself at a critical juncture, as weak demand for natural
diamonds has increased the need to diversify sources of growth. Economic activity is
expected to continue contracting this year, reflecting a further drop in diamond
production and in non-mineral activity. Inflation is low and expected to stay within the
objective range. The financial sector remains sound, though banking sector liquidity has
tightened due to the contraction in the diamond sector; increased government financing
and higher capital outflows. Despite some austerity measures, the fiscal deficit is
expected to increase to more than 8 percent of GDP this year. Unless additional fiscal
consolidation measures are adopted, public debt could rise sharply. Given the weak
outlook for diamond exports, the current account balance is forecast to remain in deficit
in the next few years, contributing to a further decline in international reserves.