IMF Executive Board Concludes 2023 Article IV Consultation with Botswana
IMF News, August 31, 2023
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- Published: August 31, 2023
Macro outlook and recent performance
- Real GDP growth: 11.9 percent in 2021; 5.8 percent in 2022; expected 3.8 percent in 2023; projected 4.1 percent in 2024 and 4.3 percent in 2025.
- Growth drivers: ongoing recovery primarily reflects elevated mining production; projected decline in diamond production drives the 2023 slowdown, with rebound in 2024–2025 due to higher prices and quantities of diamonds produced.
- Inflation: declined sharply since August of 2022 and is now below the lower bound of the central bank's objective range; projected to revert to and remain within the central bank’s objective range.
- Unemployment: remains elevated at 25 percent.
Fiscal stance and public finances
- Authorities’ plan: fiscal expansion in FY2023 followed by two years of substantial fiscal adjustment to reach a small fiscal surplus by FY2025.
- IMF view: fiscal consolidation is critical to preserve fiscal sustainability and support accumulation of foreign exchange reserves.
- Recommended fiscal measures:
- Contain expenditures.
- Mobilize additional revenues.
- Consider introduction of an expenditure rule to enhance credibility of the medium-term adjustment path.
- Executive Board noted some Directors urged cautious implementation of FY2023 planned fiscal expansion to avoid hindering disinflation and to support rebuilding fiscal buffers.
External sector and reserves
- FX reserves: after declining in 2022, reserves have stabilized and remained at adequate levels at end-2022; projected to stabilize at 5 ½ months of imports over the medium term, together with gradual recovery in diamond production and prices.
- Outlook risks: heavily dependent on demand for diamonds and the global economic cycle.
Financial sector and FSAP findings
- Financial sector assessment: appears broadly sound, stable, and resilient; 2023 FSAP found resilience to a wide range of shocks.
- Risks and recommendations:
- Monitor contagion risk from banks to non-bank financial institutions due to concentration of large non-bank deposits.
- Further enhance banking supervision on the basis of a risk-based framework; close data gaps for calibration of macroprudential tools.
- Strengthen crisis management and safety net framework; deposit insurance scheme introduced.
- Financial Stability Council should develop and coordinate a comprehensive framework for crisis management and resolution.
- Enhance interbank and government bond markets to support financial sector development, public financial management, and monetary policy transmission.
- Enhance financial inclusion by strengthening digital financial services and regulatory frameworks for lending to MSMEs.
Monetary and exchange rate policy
- Directors’ assessment: monetary policy stance remains appropriate given slowdown in inflation; authorities should be ready to raise rates if inflationary pressures emerge.
- Recommendations:
- Strengthen Bank of Botswana (BoB) governance frameworks and further enhance monetary policy transmission mechanism.
- Support refinements to the REER targeting exchange rate regime to bolster competitiveness and reduce potential frictions between monetary and exchange rate policies.
Structural reform priorities highlighted by Directors
- Advance structural reforms to promote economic diversification and private sector development to boost growth, employment potential, and reduce inequality.
- Policy priorities emphasized:
- Trade facilitation and integration.
- Comprehensive SOE reforms.
- Improving the business environment.
- Enhancing climate change resilience.
- Implementing the digitalization strategy.
- More targeted support for high-productivity, export-led sectors.
Key statistics (selected, as reported)
- Real GDP (annual percent change): 3.0 (2019), -8.7 (2020), 11.9 (2021), 5.8 (2022), 3.8 (2023), 4.1 (2024), 4.3 (2025), 4.0 (2026).
- Mineral sector (annual percent change): -3.7 (2019), -26.5 (2020), 29.8 (2021), 7.5 (2022), 0.6 (2023), 2.6 (2024), 3.5 (2025), 2.4 (2026), 2.1 (2027), 2.3 (2028).
- Nonmineral (annual percent change): 5.2 (2019), -3.5 (2020), 7.8 (2021), 5.3 (2022), 4.7 (2023), 4.5 (2024), 4.6 (2025), 4.4 (2026).
- GDP per capita (US dollars): 6,679 (2019), 5,863 (2020), 7,239 (2021), 7,738 (2022), 7,741 (2023), 8,013 (2024), 8,417 (2025), 8,943 (2026), 9,446 (2027), 10,034 (2028).
- GNI per capita (US dollars): 6,329 (2019), 5,868 (2020), 7,169 (2021), 7,515 (2022), 7,538 (2023), 7,793 (2024), 8,188 (2025), 8,693 (2026), 9,193 (2027), 9,761 (2028).
- Consumer prices (average): 2.7 (2019), 1.9 (2020), 6.7 (2021), 12.2 (2022), 5.9 (2023).
- Diamond production (millions of carats): 23.7 (2019), 16.9 (2020), 22.7 (2021), 24.5 (2022), 25.1 (2023), 25.9 (2024), 26.6 (2025), 27.1 (2026), 27.8 (2027).
- Gross official reserves (end of period, Millions of US$): 6,172 (2019), 4,944 (2020), 4,806 (2021), 4,281 (2022), 4,800 (2023), 5,196 (2024), 5,369 (2025), 5,516 (2026), 5,692 (2027), 5,884 (2028).
- Months of imports of goods and services (non-diamond basis): 13.4 (2019), 9.3 (2020), 7.7 (2021), 7.4 (2022).
- Central government debt (percent of GDP): 21.5 (2019), 23.5 (2020), 22.1 (2021), 20.8 (2022), 21.3 (2023), 20.3 (2024), 18.9 (2025), 18.4 (2026), 18.2 (2027), 17.9 (2028).
- Current account balance (percent of GDP): -6.9 (2019), -10.4 (2020), -1.4 (2021), 2.9 (2022), 0.8 (2023), 1.5 (2024), 1.1 (2025).
- Exports of goods and services, f.o.b. (% change): -17.3 (2019), -25.3 (2020), 70.3 (2021), 6.0 (2022).
- o/w diamonds (exports % change): -19.8 (2019), -21.8 (2020), 80.0 (2021), -13.3 (2022), 10.4 (2023).
Source: IMF press release, August 31, 2023.