Sound macroeconomic policies, good governance, and high levels of investment, supported by diamond and other mineral production, have moved Botswana into the ranks of middle-income countries. Maintaining fiscal surpluses over the medium term is essential to accumulate savings for the period when diamond revenues decline. Striking an appropriate balance between monetary and exchange rate policy objectives is critical. The banking sector is sound and near-term risks are well contained, but there is scope for financial sector reform. Continued structural reform and improvements in statistics are essential.


Sound macroeconomic policies, good governance, and high levels of investment, supported by diamond and other mineral production, have moved Botswana into the ranks of middle-income countries. Maintaining fiscal surpluses over the medium term is essential to accumulate savings for the period when diamond revenues decline. Striking an appropriate balance between monetary and exchange rate policy objectives is critical. The banking sector is sound and near-term risks are well contained, but there is scope for financial sector reform. Continued structural reform and improvements in statistics are essential.

I. Relations with the Fund

(As of September 30, 2007)

I. Membership Status Joined July 24, 1968; Accepted the obligations of Article VIII, Sections 2, 3, and 4: November 17, 1995.

II. General Resources Account

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II. SDR Department

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IV. Outstanding purchases and loans None

V. Financial arrangements None

VI. Project obligations to Fund None

VII. Implementation of HIPC Initiative None

VIII. Exchange rate arrangements

The exchange rate of the Botswana pula is a crawling peg arrangement against a basket of currencies. As of September 30, 2007, the exchange rate of the U.S. dollar to the pula was US$1=P6.06, and that of the South African rand to the pula was R1=P0.88.

Directors noted in the context of the 2006 consultation that Botswana maintains a multiple currency practice (MCP) relating to exchange rate guarantees on one loan and urged the authorities to take early action to remove that practice. This MCP was eliminated, on August 8, 2007, with the conversion of the outstanding loan under the Foreign Exchange Risk Sharing scheme to a pula loan.

IX. Article IV Consultation

Botswana is on a standard 12-month consultation cycle. The last Article IV consultation was concluded by the Executive Board on December 13, 2006. Directors agreed with the thrust of the staff appraisal.

X. Technical assistance assignments/projects

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XI. Technical assistance missions

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II. Relations with the World Bank Group

(As of October 29, 2007)

1. Botswana became a member of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) in 1968. Cumulative commitments from IDA to Botswana include US$17 million for six development credits for infrastructural development and the livestock sector. The last credit was extended in 1974. Cumulative commitments from the IBRD to Botswana amount to US$281 million for 22 loans, of which US$54 million was canceled. The loans were extended for infrastructure development, the financial sector, land management, livestock development, and education and health projects. The last loan was extended in 1987. Since the late 1980s, the Government has not required external borrowing owing to its strong financial and international reserve position based on diamond mining receipts. As lending phased out, the Bank’s involvement in Botswana shifted to limited analytical and advisory services.

2. Over the past decades, Botswana has demonstrated its capacity to address its development challenges effectively. However, the increasing sophistication of its development agenda makes it more critical than ever before to introduce international development experiences. The Government has therefore expressed interest in a closer partnership to benefit from the World Bank’s comparative advantage in key development areas. Specifically, it has requested IBRD loans for two projects: one on HIV/AIDS and one on integrated transport. The HIV/AIDS project (about US$56 million) is scheduled for delivery in the fourth quarter of fiscal year 2008 and the Transport project (about US$110 million) in the first quarter of fiscal year 2009. Given that its upper middle-income status excludes Botswana from the World Bank’s highly concessional IDA resources, the Government requested that the proposed HIV/AIDS operation be financed utilizing a relatively new instrument referred to as an IBRD “buy-down” which involves utilizing donor resources to lower the cost of an IBRD loan. The release of these donor funds would be dependent on project performance, with jointly agreed indicators and targets. The European Commission (EC) has indicated its strong interest in supporting the buy-down. Although final amounts still have to be confirmed, the EC has suggested that new funds of approximately US$20.6 million would be available to support this effort. Given the expected EC contribution and Government’s indicated preference for a 0 percent interest rate, a project size of approximately US$56 million is proposed over a five-year period. In addition to the two IBRD operations under preparation, the Government has requested Bank support in the energy sector. The Bank is initiating discussions with the Government on an IBRD Partial Risk Guarantee (PRG) and possibly an IBRD loan. The Bank is also preparing a US$5 million GEF grant–financed project on wildlife management and biodiversity conservation. A first-ever Interim Strategy for Botswana (24 months, Board in March 2008) will provide the strategic underpinning for the new lending operations and the growing partnership.

3. Recent Bank analytical work in Botswana includes an Export Diversification Report in FY05, ROSC on Accounting and Auditing, Livestock Sector Development Strategy, and Poverty and Social Impact Analysis in fiscal year 2006. The Bank conducted an Investment Climate Assessment in fiscal year 2007; some follow-up work is planned for fiscal year 2008. Through trust funds the Bank is supporting Botswana in statistical capacity building and monitoring and evaluation. Carbon Finance Assist, the World Bank’s climate change capacity building program administered by the World Bank Institute, is launching technical assistance.

4. Botswana joined the International Finance Corporation (IFC) in 1979, but there has been little private sector interest in Botswana in IFC financing because high liquidity has enabled the private sector to raise funds in the domestic market. Cumulative IFC equity and loan commitments to Botswana total US$10.72 million in five tourism, financial, and mining enterprises. In fiscal years 1999 and 2000, the IFC made two loan commitments amounting to US$1.75 million to Abercombie and Kent (Botswana) for accommodation and tourism services projects in the Okavango Delta. In fiscal year 2001, the IFC made a quasi-equity investment of US$3 million in the African Banking Corporation aimed at diversifying its range of financial services and increasing its geographical coverage. In fiscal year 2003, it approved a US$2 million equity investment in Kalahari Diamonds Limited for exploration in the Kalahari desert. At the end of 2004, the IFC took an equity stake of US$3.97 million in Letshego, a consumer finance company that provides short- to medium-term micro loans to public and private sector employees. IFC is currently negotiating a US$20 million investment in African Banking Corporation to further support its regional expansion. It has also signed a mandate to provide Letshego with additional funding through a US$20 million local currency loan that will also support Letshego’s regional expansion plans.

5. The IFC has advised the Government of Botswana on privatization and in fiscal year 2004 the Public Enterprises Evaluation and Privatization Agency gave the IFC the privatization mandate for Air Botswana. IFC Advisory Services has been selected as Transaction Advisor for the structuring of a public-private partnership for the proposed Botswana International University of Science and Technology. The Corporation is also at the early stage of engaging on the privatization of Botswana Telecommunications Corporation.

6. In 2004, the Foreign Investment Advisory Service completed a review of the commercial law, administrative and registration costs, and barriers to investment in Botswana.

7. Botswana joined the Multilateral Investment Guarantee Agency (MIGA) in 1988; MIGA has no exposure and no active applications in Botswana.

World Bank Contacts: Mr. Dirk Reinermann, Lead Operations Officer, at 27-12-431-3144 Ms. Anna van der Wouden, Country Officer, at 202 458 2976

III. Statistical Issues

1. Data provision is adequate to conduct surveillance, but there are some shortcomings. The accuracy of data, particularly for the national accounts and balance of payments, needs improvement. In addition, the current arrangements according to which balance of payments statistics are compiled on a calendar-year basis, the national accounts on a July-June schedule, and the budget on an April-March schedule, hamper the accuracy and integration of economic data and the analysis of savings-investment balances.

2. A ROSC reassessment took place October 31-November 13, 2006 and the report, along with the authorities’ response, was published on April 6, 2007. Cross-cutting recommendations were to monitor the consistency of the main macroeconomic datasets and reconcile differences regularly; establish a list of institutional units consistent with sectorization in the 1993 System of National Accounts (1993 SNA), to be applied consistently across all datasets; and support greater use of preliminary data by formalizing revision policies and implementing regular revision cycles.

3. As one of 22 countries participating in the Fund’s General Data Dissemination System (GDDS) Project for Anglophone African Countries, Botswana has undertaken to use the GDDS as framework for the development of its national statistical system. Botswana is participating in the monetary and financial statistics modules of the Anglophone Africa project (funded by the U.K. Department for International Development (DFID)). This project aims to assist participating countries to implement plans for improvement identified in the metadata, which were posted on the Fund’s Dissemination Standards Bulletin Board on October 24, 2002.

National Accounts and Prices

4. Using the production and expenditure approaches, national accounts are now principally based on the concepts and definitions recommended by the 1993 SNA, in line with the strong commitment of the authorities to migrate to the 1993 SNA, but some changes are needed for full observance. For instance, classification and sector breakdowns are still broadly in line with 1968 SNA. Differences in the accounting periods and in the timing of recording between national accounts, balance of payments, and government finance statistics are still hindering the accuracy of estimates. Staff have encouraged the authorities to expedite the planned move to harmonize the accounting periods over the medium term. It would be important to conduct comprehensive enterprise surveys every few years and introduce estimates for the informal sector. Detailed recommendations are contained in the April 2007 ROSC report.

5. The consumer price index is comprehensive and provides breakdowns between urban and rural areas and between tradable (domestic and imported) and nontradables. The Classification of Individual Consumption by Purpose (COICOP) in the rebased CPI (September 2006) broadly conforms with the guidelines of 1993 SNA and the CPI Manual, although there are still deviations with respect to the imputation of rents and owner-occupied housing. Estimates from the Household Income and Expenditure Survey (HIES) are used for the weights of market expenditure for goods and services. With respect to the wholesale price index (WPI), the ROSC mission recommended the development of concepts and definitions to meet the needs of data users. The Central Statistics Office is to decide whether to produce an output index (PPI), an Intermediate Consumption Index or a Supply Price Index. Currently, the WPI of industrial output is not representative of industrial production, because it measures changes in the prices of only six product groups.

Fiscal accounts

6. The concepts and definitions used in compiling central government finance statistics generally follow the methodology of the IMF’s Government Finance Statistics Manual (GFSM 1986) but cover only budgetary central government activities.. No fiscal statistics are compiled for extrabudgetary institutions and consolidated central government. The classification used for budgetary central government partially follows the concepts of GFSM 1986. Detail on some components of current spending is lacking. Transactions are recorded on a cash basis consistent with the GFSM 1986 guidelines. In general, the statistics disseminated in official publications are presented clearly and are made available to all users simultaneously. The data ROSC mission recommended at least annual compilation and dissemination of GFS for extrabudgetary institutions, and the consolidated general government. The authorities have yet to decide on a suitable “migration path” to adopt the GFSM 2001 methodology. The authorities regularly report monthly data on budgetary central government for inclusion in the International Financial Statistics, but no data are reported for inclusion in the Government Finance Statistics Yearbook.

7. The periodicity of central government finance statistics meets GDDS standards, except for timeliness. It should be noted that information is available to permit compilation and dissemination of government finance statistics within the GDDS recommendations.

Monetary accounts

8. The Bank of Botswana’s (BoB) compilation of the depository corporations survey is generally consistent with the methodology recommended in the Fund’s Monetary and Financial Statistics Manual (MFSM). The survey covers BoB and all other depository corporations that issue liabilities included in the national definition of broad money as recommended in the MFSM. Classification and sectorization are largely consistent with MFSM, except for the classification of financial derivatives. In addition, some nonbudgetary central government units are classified as nonfinancial public corporations and accrued interest is not consistently presented together with the underlying instrument.

9. Monetary data for publication in International Financial Statistics are reported regularly using Standardized Report Forms. Although reporting is more timely, data concerning the central bank are still being reported to STA with a longer lag than those for the other depository corporations.

External sector statistics

10. The concepts, structure and definitions of the balance of payments statistics follow the fifth edition of the Balance of Payments Statistics Manual (BPM5). Institutional classifications generally follow BPM5, although data sources raise minor issues, in particular, administrative sources using definitions and classifications that deviate from BPM5. Source data are adequate, but International Transaction Reporting System (ITRS) data, used mostly for services, have become unreliable, and alternative data sources are needed. Data compilation, estimation, and adjustments mostly employ sound techniques. However, the methods for estimating missing data and calculating flows from stock data are inadequate.

11. Balance of payments statistics are compiled and published in the BoB’s monthly statistical bulletin and the Annual Report, thus meeting GDDS periodicity and timeliness recommendations, although only annual balance of payments statistics are reported to STA for publication. There are discrepancies with national accounts statistics concerning imports, exports, and payments related to settlements within the Southern African Customs Union (SACU), mainly due to different data sources and valuation methods.

Botswana: Table of Common Indicators Required for Surveillance

(As of October 23, 2007)

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Daily (D), weekly (W), monthly (M), quarterly (Q), annually (A), irregular (I), and not available (NA).

Reflects the assessment provided in the data ROSC published on April 6, 2007 and based on the findings of the mission that took place during October 31-November 13, 2006, for the data set corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), not observed (NO), or not available (NA).

Same as footnote 2, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discount, money market, treasury bill, note, and bond rates

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra-budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.