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© 2002 International Monetary Fund

November 2002

IMF Country Report No. 02/244

Botswana: 2002 Article IV Consultation—Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussiona

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the Article IV consultation with Botswana, the following documents have been released and are included in this package:

  • the staff report for the 2002 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on May 22, 2002, with the officials of Botswana on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 12,2002. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • a staff statement of October 9, 2002 updating information on recent developments.

  • a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its October 9,2002 discussion of the staff report that concluded the Article IV consultation.

The document(s) listed below have been or will be separately released.

  • Selected Issues and Statistical Appendix

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to Publicationpolicy@imf.org.

Copies of this report are available to the public from

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International Monetary Fund

Washington, D.C.

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INTERNATIONAL MONETARY FUND

BOTSWANA

Staff Report for the 2002 Article IV Consultation

Prepared by the Staff Representatives for the 2002 Consultation with Botswana

Approved by José Fajgenbaum and Shigeo Kashiwagi

August 12, 2002

  • The 2002 Article IV consultation discussions were held in Gaborone during May 10–22. The mission met with Minister of Finance and Development Planning Baledzi Gaolathe, Bank of Botswana Governor Linah Mohohlo, other officials of the government and the Bank of Botswana, commercial bankers, and representatives of the business community and NGOs. The staff team comprised Mr. Green (head-AFR), Mr. Akatu (AFR), Mr. Ding (TRE), Mr. Mfunwa (AFR), and Mr. Poddar (AFR).

  • At the conclusion of the previous Article IV consultation, on March 12, 2001, Directors observed that, while Botswana could readily finance government deficits in the short run, high rates of growth in government spending could be inflationary. Directors expressed concern over the economic and social consequences of HIV/AIDS and welcomed the government’s focus on preventing the spread of the discase. They endorsed Botswana’s exchange rate peg as a suitable monetary anchor.

  • Botswana accepted the obligations of Article VIII, Sections 2(a) and 3 on November 17, 1995. It maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for the multiple currency practice discussed in paragraph 30.

  • Botswana’s relations with the IMF, including technical assistance, are summarized in Appendix I, and its relations with the World Bank Group in Appendix II. Statistical issues are discussed in Appendix III and in the Report on the Observance of Standards and Codes—Data Module, on the IMF web site. The quality and timeliness of data are generally adequate for conducting surveillance, but the timeliness of national account and labor market data could be improved. Accounting periods for national accounts, the government finances, and the balance of payments could be aligned for better policy analysis. International reserve and debt data meet GDDS quality benchmarks and Botswana is preparing to participate in the Fund’s General Data Dissemination System (GDDS). Social and demographic indicators can be found in Appendix IV.

Contents

  • Executive Summary

  • I. Recent Developments

  • II. Report on Discussions

    • A. Economic Prospects

    • B. Monetary and Exchange Rate Policies

    • C. Fiscal Policy

    • D. Policy Coordination

    • E. Structural Issues

    • F. Other Issues

  • III. Staff Appraisal

  • Text Box

  • 1. Fiscal Implications of HIV/AIDS

  • Tables

  • 1. Selected Economic and Financial Indicators, 1998–2003

  • 2. Sectoral GDP and Savings-Investment Balances, 1995/96–2002/03

  • 3. Central Government Operations, 1997/98–2002/2003

  • 4. Monetary Survey, 1995–2002

  • 5. Assets and Liabilities of the Bank of Botswana, 1995–2002

  • 6. Balance of Payments, 1995–2001

  • 7. Medium-Term Scenario, 2002–2007

  • Figures

  • 1. Selected Exchange Rate Indicators, January 1995–June 2002

  • 2. Main Economic Indicators, 1990–01

  • 3. Botswana and Selected Countries: Per Capita GDP, 1980–2001

  • Appendices

  • I. Relations with the Fund

  • II. Relations with the World Bank Group

  • III. Statistical Issues

  • IV. Social and Demographic Indicators

Executive Summary

  • Sound policies and substantial reserves have helped Botswana weather two external shocks in 2001 and the regional food shortage in 2002. Output growth in the nonmining sector, an indicator of the economy’s underlying strength, picked up. Consumer price inflation fell to a 20–year low at the end of 2001 but is expected to rise in 2002, owing to sharply higher regional food prices and increases in administered prices. The external current account remains in surplus.

  • HIV/AIDS is Botswana’s foremost economic and social challenge. The government is tackling the virus head–on through extensive prevention programs, and it intends to provide advanced drug therapies to all those in need. Health spending was increased by 50 percent in 2002/03 (April–March), but the long–term cost implications of HIV/AIDS are unclear.

  • Medium–term growth will slow not only because of the plateau in diamond production, but also because of HIV/AIDS. Benefits stemming from structural policies will offset the impact of HIV/AIDS to some extent.

  • A fiscal deficit in 2001/02 and another projected for 2002/03 are mainly due to cyclical factors and the rise in health spending. They should not be seen as a deviation from the government’s commitment to a sustainable budget. The 2002/03 deficit is to be held to the amount attributable to temporary factors and to HIV/AIDS.

  • The staff team recommended that the authorities enhance policy coordination to improve the fiscal–monetary policy mix. A domestic balance measure of the fiscal stance could give a better indication of the government’s claim on resources and allow the government to set fiscal policies more in line with inflation objectives. It would also help the Bank of Botswana assess the monetary stance.

Botswana: Selected Financial and Economic Indicators, 1996-2001

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July-June.

April-March.

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Public Information Notice (PIN) No. 02/126

International Monetary Fund

FOR IMMEDIATE RELEASE

700 19th Street, NW

November 1, 2002

Washington, D.C. 20431 USA

IMF Concludes 2002 Article IV Consultation with Botswana

On October 9, 2002, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Botswana.1

Washington, D.C. 20431 • Telephone 202-623-7100 • Fax 202-623-6772 • www.imf.org

Botswana: Staff Report for the 2002 Article IV Consultation
Author: International Monetary Fund