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IMF Country Report No. 20/78
BOTSWANA
2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR BOTSWANA
March 2020
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 2019 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 9, 2020 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 consideration on March 9, 2020, following discussions that ended on November 27, 2019, 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 February 21, 2020.
An Informational Annex prepared by the IMF staff.
A Supplementary Information prepared by the IMF staff
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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BOTSWANA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
February 21, 2020
Key Issues
The Staff Report was prepared by an IMF staff team for the Executive Board’s consideration on March 9. The staff report reflects discussions with the Botswana authorities in November 2019 and is based on the information available as of February 21, 2020. It focuses on Botswana near- and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity, and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Botswana and globally.
Outlook and risks. GDP growth is forecasted to pick up to 4.4 percent in 2020 and 5.6 percent in 2021 as the diamond industry recovers somewhat, and a new copper mine comes on stream. Growth will ease back to around 4 percent over the medium term. Risks to the outlook include faster-than-anticipated slowdown in key trading partners, shifts in consumer preferences to synthetic diamonds, and climate shocks.
Fiscal policy. The size and pace of the planned adjustment are consistent with Botswana’s fiscal space, but the composition of the adjustment should protect efficient capital and social spending. Furthermore, given that buffers are being eroded, it is critical that consolidation starts as envisaged in FY2020, as it would help start addressing external imbalances and contribute to a gradual rebuilding of buffers over the medium term. Achieving the authorities’ plans would require additional revenue and spending measures beyond those included in the staff’s baseline. These measures need to be carefully calibrated to minimize the impact on competitiveness, growth, and the most vulnerable.
Monetary and exchange rate policies. The Bank of Botswana (BoB) accommodative monetary policy stance is appropriate. Looking forward, the BoB should use the flexibility afforded by its current exchange rate regime to facilitate the economy’s adjustment to the persistent decline in mineral revenue and SACU transfers, and structural transformation. To strengthen the monetary transmission mechanism and deepen the domestic financial market, there is a need to develop the secondary market for government securities, leverage Fintech, facilitate the attachment of collateral, and improve credit information.
Enhancing Botswana’s fiscal framework. Key reforms include: i) modifying the fiscal rule to allow Botswana to achieve its intergenerational equity objective and shelter the economy from the commodity cycle and revenue volatility; ii) greater revenue mobilization by broadening the tax base and advancing tax reform; iii) enhancing the efficiency of spending; iv) reforming parastatals and strengthening their monitoring and accountability, and v) revamping the debt management framework.
Supply-side policies. Further improve the business environment, foster competition and competitiveness, and reduce the government footprint in the economy. Strategic deficiencies in the Anti-Money Laundering/Combating the Financing of Terrorism framework (AML/CFT) should be addressed.
Approved By
D. Robinson (AFR) M. Goodman (SPR)
Discussions for the 2019 Article IV consultation took place in Gaborone during November 13–27, 2019. The team comprised Mr. N’Diaye (head), Ms. Lagerborg, Messrs. Jardak and Peralta-Alva (all AFR). Ms. Mannathoko and Mr. Abdullahi (both OED) participated in the discussions. Ms. Li and Mr. Alsokhebr provided research and editorial assistance for the preparation of this report.
Contents
BACKGROUND
MACROFINANCIAL DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Calibrating Macroeconomic Policies
B. Fostering Economic Transformation
STAFF APPRAISAL
BOXES
1. Climate Change in Botswana
2. Monetary Policy and Monetary Transmission in Botswana
3. Illustrative Effects of Delayed Fiscal Adjustment to a Persistent Terms of Trade Shock
4. Transitioning to a Knowledge-Based Economy
5. Accelerating Convergence: Lessons from Selected Countries’ Experiences
FIGURES
1. Improved Living Standards, but High Inequality and Persistent Unemployment
2. Macroeconomic Developments
3. Macro-financial Linkages
4. Fiscal Rules for Intergenerational Equity and Smoothing Fluctuations
TABLES
1. Selected Economic and Social Indicators, 2014–2025
2. Balance of Payments, 2014–2025
3a. Central Government Operations, 2014/15–2025/26 (Billions of pula)
3b. Central Government Operations, 2014/15–2025/26 (Percent of GDP)
3c. Central Government Operations, 2014/15–2025/26 (Percent of non-mineral GDP)
4. Monetary Survey, 2014–2025
5. Financial Soundness Indicators, 2014–2019
ANNEXES
I. Track Record of Economic Policies and Reforms
II. External Stability Assessment
III. Risk Assessment Matrix
IV. Debt Sustainability Analysis
V. Summary of Capacity Development Strategy (FY2020–22)
APPENDICES
I. Revamping Botswana’s Fiscal Rule Framework Methodology
II. Details of a General Equilibrium Model for Botswana
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BOTSWANA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
February 21, 2020
Prepared BY
African Department in Consultation with the Statistics Department
Contents
RELATIONS WITH THE FUND
STATISTICAL ISSUES
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BOTSWANA
STAFF REPORT FOR THE ARTICLE IV CONSULTATION — SUPPLEMENTARY INFORMATION
March 17, 2019
Approved By
Johannes Wiegand (SPR)
Prepared by African Department
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