The staff report for the 2006 Article IV Consultation on Botswana highlights economic developments and monetary and exchange rate policy. Botswana’s growth has been fueled by continued increases in diamond production; and real diamond output is projected to level off, and then decline sharply after about 15 years. Diversification of the economy will require implementation of substantial structural reforms, in particular the authorities’ planned reforms in labor markets, the investment environment, and the role of parastatals.
Robert Guest, Geoff Hill, Kaushik Basu, Strobe Talbott, and Mr. Stanley Fischer
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This Background Paper and Statistical Appendix describes economic and financial developments in Botswana during 1993–94. Although real GDP in Botswana recovered somewhat to 2.5 percent in 1993/94, compared with a decline of 1.5 percent in 1992/93, this outcome represented a decline in real GDP per capita for the second consecutive year. The government sector continued to expand relatively fast as the civil service continued to grow fairly rapidly, leading to an increasing share in the nonmining GDP, which rose from 34.8 percent in 1992/93 to 36.1 percent in 1993/94.
This paper suggests that it is essential to save a substantial portion of mineral revenues now to ensure fiscal sustainability for a post-diamond period. Taking the non-mineral primary balance into account can help clarify desirable fiscal policies. Botswana’s real effective exchange rate is broadly in line with economic fundamentals and consistent with external sustainability, indicating no threat to external stability. Export performance and other indicators suggest a number of structural competitiveness obstacles that could explain the low labor productivity and poor export and export diversification outcomes.
This Selected Issues paper for Botswana highlights the macroeconomic impact of an effectively implemented National Strategic Framework (NSF) program. The NSF is anchored on the goals of prevention, care, and support; management of the national response; economic impact mitigation; and provision of a strengthened legal and ethical environment. The treatment of the pandemic focuses on the administration of antiretroviral drugs to the infected, the effect of which would be to prolong their lifespan, as well as increase the average level of productivity.
This Selected Issues paper and Statistical Appendix provides medium-term estimates of the cost of the government’s current anti-HTV/AIDS policies and programs in Botswana. The paper throws light on the policy challenges that Botswana authorities face in combating the crisis. The findings suggest that the cost of treating HIV/AIDS patients is likely to be high, about 10 percent of GDP, by 2010 (using the baseline estimates). The paper also analyzes Botswana’s approach to medium-term fiscal management.
This Selected Issues paper and Statistical Appendix analyzes economic developments in Botswana during the 1990s. The paper analyzes the growth process during 1982/83–1996/97 by assessing the contribution of capital, labor, and technological progress, both at the macroeconomic and sectoral levels. The paper examines the diversification initiatives undertaken by Botswana and the extent to which diversification and employment creation have been achieved. It provides the background to the unemployment problem, and summarizes Botswana’s policy initiatives to diversify and create sustainable employment.
The staff report for the 2005 Article IV Consultation on Botswana highlights key issues, recent developments, and policy discussions. The authorities are strengthening their structural reform agenda and moving ahead with sector-specific development programs with a view to sustaining annual growth in the 5–6 percent range as targeted in their current medium-term development plan. The authorities recognized the importance of fiscal adjustment to maintaining macroeconomic stability. They have no plans to move away from the exchange rate peg in the near term, but are exploring their options with regard to the monetary policy framework.
This paper discusses 2013 Article IV Consultation highlights slower economic performance and financial risks in Botswana. The output growth is expected to remain broadly unchanged in 2013 as strong nonmining sector growth would offset the subdued mining output. Banks’ high exposure to households and the acceleration in the growth of unsecured lending are, however, potential vulnerabilities. The authorities are advised to continue to bolster their surveillance capacity to monitor financial sector developments and consider implementing macroprudential measures to temper the rate of growth of household borrowing.
KEY ISSUESSetting: The seeds of good governance and prudent macroeconomic and naturalresources management planted by the Botswana authorities paid off with an impressive increase in the GDP per capita during the last three decades. However, as in many other small middle-income countries (SMICs) in the region, trend growth has softened in recent years, reflecting the decline in the contribution of total factor productivity (TFP) to growth which calls for policies to reduce structural bottlenecks in the economy.Current conditions and outlook: Botswana’s economy remains broadly internally and externally balanced and the authorities’ near-term macroeconomic policy mix is appropriate. Output growth is expected to slowdown in 2014 reflecting partly weaknesses in the non-mineral sector, while inflation is expected to remain within the Bank of Botswana’s (BoB) medium-term objective range of 3-6 percent.Fiscal policy: Staff supports the FY2014/15 budget, which reins in unproductive current spending, while protecting growth-promoting capital spending. Achieving medium-term fiscal consolidation objectives adopted in the budget, would require articulating concrete measures to reduce the wage bill relative to GDP and broaden the revenue base.Financial sector development: Botswana’s banking system is well-capitalized and profitable with relatively low nonperforming loans. Although from a low base, credit growth to households continues to expand at a high rate, which poses potential vulnerabilities for the financial sector. Thus, staff recommends that macro prudential measures be considered to temper the rate of growth of household borrowing. In this context, staff welcomes the government’s emphasis on enhancing greater financial deepening and inclusion, while preserving the stability of the financial system.Reinvigorating growth: Returning to an era of strong growth and accelerating Botswana’s convergence to higher income levels would require policies to reinvigorate TFP growth. These include improving the quality of public spending, notably in public investment projects and education to ensure the transformation of diamond wealth into sustainable assets. The authorities’ efforts to improve the country’s competitiveness, including through reducing the regulatory burden on firms, is also welcomed.Past advice: There is broad agreement between the Fund and the authorities on the macroeconomic policy stance and structural reform policy priorities. Consistent with staff’s advice, the FY 2014/15 budget outlined a framework to reduce the burden of loss- making state-owned enterprises on fiscal resources and propel them toward commercial viability. Furthermore, the budget includes medium-term projections of government accounts, as recommended by staff during past consultations. However, progress towards reducing the wage bill relative to GDP remains modest.