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IMF Country Report No. 16/103
BOTSWANA
2015 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR BOTSWANA
April 2016
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 2015 Article IV consultation with Botswana, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its March 16, 2016 consideration of the staff report that concluded the Article IV consultation with Botswana.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s information following discussions that ended December 22, 2015 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 March 1, 2016.
A Statement by the Executive Director for Botswana.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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Front Matter Page
BOTSWANA
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION
March 1, 2016
Key Issues
Context. Botswana’s diamond endowment and its track record of good macroeconomic policy management and political stability contributed to high average economic growth and strong fiscal and balance of payments positions in recent years. Beyond these achievements, the authorities see a need to reduce unemployment, eliminate water and electricity shortages, and improve the efficiency of government operations. In addition, given the limits of the diamond and public sector-based growth model (diamond reserves could be exhausted by 2050 and inefficiencies in the public sector), a wave of reforms is called for to foster the development of the private sector, diversify the economy, and improve the skills of the labor force.
Recent Developments. Real GDP growth is estimated to have turned negative in 2015 owing to weaknesses in the global demand for diamonds and a deceleration of activity in the non-mining sector, driven mainly by spillovers from lower mining activity. Inflation has been low and is now near the lower bound of the Bank of Botswana objective range of 3-6 percent.
Outlook. The economy is expected to recover gradually over the next three years, driven by a gradual pick up in global diamond prices and fiscal stimulus. The main risks to the outlook are a slowdown in economic activity in major advanced and emerging markets and delays on restoring reliability and self-sufficiency in water and electricity and in implementing other structural reforms.
Fiscal and monetary policies. The 2016/17 budget presented to Parliament in February envisages high levels of public investment and a higher fiscal deficit. The stimulus is justified in the face of a negative output gap, strong fiscal buffers, and the need to close the infrastructure gap. However, its scale may be ambitious given past difficulties in implementing infrastructure projects. The Bank of Botswana’s accommodative monetary policy stance is appropriate, although the space for further monetary easing will be constrained by the fiscal expansion. The financial sector is stable but requires continued monitoring.
Main recommendations. In the near-term, the priorities are to increase the efficiency of public investment, reform the water and energy sectors, and improve workers’ skills and the business environment. In the medium-term, the growth strategy needs to be focused on a few areas and backed by bold reforms to mobilize domestic revenues, rationalize government spending and state-owned enterprises, implement a well-prioritized public investment program and consider adopting a sound fiscal rule, and improve education and labor market policies.
Approved By
Anne-Marie Gulde-Wolf (AFR) and Luis Cubeddu (SPR)
The discussions took place in Gaborone in the period December 7–22, 2015. The staff team comprised Mr. Gelbard (head), Ms. Marchettini, Mr. Torres, Mr. Issoufou (all AFR), and Ms. Moldovan (RES). The mission worked together with a concurrent mission by Mr. Aziz (AFRITAC South) on public financial management, who also participated in the policy meetings. The staff met with the Governor of the Bank of Botswana Ms. Linah Mohohlo, the Minister of Finance and Development Planning Mr. Kenneth Matambo, other senior officials, and representatives of the donor community, civil society, and the financial sector.
Contents
CONTEXT
RECENT DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Policy Mix, Fiscal Risks, and Financial Stability
B. Enhancing the Framework for Economic and Financial Stability
C. Diversification and inclusive growth
OTHER ISSUES
STAFF APPRAISAL
BOXES
1. Developments in the Diamond Industry
2. Investment Scaling Up Scenario
FIGURES
1. Macroeconomic Developments
2. Monetary Policy and Exchange Rate
3. Macroeconomic Performance and Resource Intensity
TABLES
1. Key Issues From Previous Article IV Consultations
2. Selected Economic and Social Indicators, 2012–20
3a. Central Government Operations, 2012/13–2020/21
3b. Central Government Operations, 2012/13–2020/21
3c. Central Government Operations, 2012/13–2020/21
4. Balance of Payments, 2012–2020
5. Monetary Survey, 2012–2020
6. Financial Soundness Indicators, 2012–2015:Q3
7. Risk Assessment Matrix (RAM)
APPENDICES
I. International Reserve Adequacy
II. External Stability Assessment
III. Debt Sustainability Analysis
IV. Fiscal Rules for Botswana
V. Scaling Up Public Investment: Simulations with the DIGNAR Model
VI. Press Release
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BOTSWANA
STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
March 1, 2016
Prepared By
African Department in Consultation with the Statistics Department and World Bank Staff
Contents
FUND RELATIONS
JOINT WORLD BANK AND IMF WORK PROGRAM
STATISTICAL ISSUES
Front Matter Page
Press Release No. 16/118
FOR IMMEDIATE RELEASE
March 17, 2016
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