An International Monetary Fund (IMF) team led by Enrique Gelbard visited Gaborone from May 1-16 for discussions on the 2017 Article IV Consultation with Botswana. The discussions centred on recent developments and prospects, with special focus on policies to support the continued economic stability and the promotion of inclusive growth.
Below are highlights of IMF’s observations based on Enrique Gelbard’s statement at the end of the visit:
Economic recovery – Following a downturn in 2015, Botswana’s pace of economic activity recovered in 2016, supported by improvements in diamond sales, fiscal stimulus, and an accommodative monetary policy. The rate of inflation remained low, close to the lower band of the Bank of Botswana’s inflation objective range of 3–6 percent, and the trade-weighted exchange rate has been broadly stable. Botswana’s exchange rate regime of a managed rate of crawl against a basket of currencies continues to serve the country well and, at the moment, no changes are deemed necessary.
Fiscal deficit fell – In the past year, government spending rose in line with the government’s Economic Stimulus Program, but the fiscal deficit fell to about 1 percent of GDP owing to higher revenues from diamonds. The financial sector has remained well capitalised, profitable, and stable, despite a small increase in non-performing loans associated with the liquidation of the state-owned BCL copper and nickel mine.
Tax revenue reforms need to be accelerated to protect public finances against any adverse developments and maintain the country’s track record of sound fiscal management.
Going Forward – positive prospects for the diamond sector could lead to somewhat higher rates of GDP growth in 2017-19. Fiscal projections envisage moderate deficits this year and the next, with surpluses thereafter. The fiscal profile is predicated on the authorities’ intention to increase tax revenues and slow down the pace of spending on wages and salaries and on transfers to state-owned enterprises. In this connection, tax revenue reforms need to be accelerated to protect public finances against any adverse developments and maintain the country’s track record of sound fiscal management.
The authorities need to proceed with the privatisation process and reforms to improve the efficiency and financial viability of government enterprises, reduce bureaucratic procedures for private businesses, and improve education outcomes and the skills of the labour force.
Special focus on activities with economy-wide benefits – As the economy finishes its cyclical recovery, and considering the challenges to foster private sector growth and employment creation, the authorities plan to tilt the composition of public spending to favor investment in physical and human capital, a move to be accompanied with steps to improve the quality and effectiveness of such spending.
Furthermore, a focus on activities with economy-wide benefits (e.g. cost-effective investment projects, internet connectivity) will be critical in the period ahead. To complement these efforts, the authorities need to proceed with the privatisation process and reforms to improve the efficiency and financial viability of government enterprises, reduce bureaucratic procedures for private businesses, and improve education outcomes and the skills of the labour force.
Delivery of aforementioned reforms a sure way to job creation– As envisaged in the latest National Development Plan, the authorities plan to promote economic diversification into selected sectors. In this regard, it would be preferable to focus on a few sectors with growth and employment potential (e.g. tourism in the north of the country) by designing and implementing development strategies with concrete goals, time-bound steps, and monitorable outcomes.
Delivering on the above policies and reforms will ensure economic stability and pave the way for private sector-led growth and employment creation in Botswana.
The IMF team met with the Minister of Finance and Economic Development, Honorable Kenneth Matambo, the Governor of the Bank of Botswana, Moses Pelaelo, the Permanent Secretary of the Ministry of Finance and Economic Development, Solomon Sekwakwa, other senior government officials, and representatives of the private sector and development partners.