IMF urges Botswana to focus on viable projects
Isaac Pinielo | Thursday March 31, 2016 11:06
Article IV Consultations are bilateral discussions whereby the IMF consults annually with each member to assess each country’s economic health and to forestall future financial problems.
An IMF delegation visited Gaborone in December last year for discussions on the Article IV Consultation with Botswana. The focal point of the discussions was on near term policies to offset the current economic slowdown and on the reforms and investments needed to foster diversification and inclusive growth.
In their assessment of Botswana, the directors of the IMF executive board stressed the importance of moving ahead with structural reforms to strengthen the efficiency of the public sector and promote private sector development.
They advised the country to diversify the economy and lower unemployment in the context of the forthcoming National Development Plan.
“Priorities include reforms to resolve the energy and water crises and improve the efficiency of state-owned enterprises (SOEs),” the directors said.
More generally, they added, Botswana should strengthen the quality and efficiency of public investment by undertaking a Public Investment Management Assessment and implementation of the action plan to improve the business environment.
They also suggested that efforts should be made to improve employment prospects by enhancing training programmes and investments in education.
The directors also supported the current macroeconomic policy stance, which they described as “accommodative”, noting that the fiscal stimulus envisaging high levels of public investment is justified given the negative output gap, strong buffers and the need to close the infrastructure gap.
Nevertheless in light of implementation and capacity constraints, the directors encouraged the authorities to exercise caution and focus on the most profitable and viable investments.
Furthermore, they emphasised that in the medium term fiscal consolidation will be important to safeguard fiscal and external stability.
In this regard, they welcomed the authorities’ commitment to return to fiscal surpluses within the next three years by containing current spending especially the size of the wage bill and transfers to SOEs. However, the board commended Botswana’s track record of prudent economic policies and sound institutions which they say had led to low public debt and sizable fiscal and foreign exchange savings. The directors noted that with the recent weakening of the global demand for diamonds, the near-term outlook has become more challenging.
They concurred that the country is well-positioned to weather the current downturn and that medium-term prospects are favourable although subject to downside risks.In light of subdued prospects for revenues from the Southern African Customs Union (SACU) and risks about future diamond receipts directors stressed the need to enhance non-mineral revenue mobilisation notably in the areas of value-added-tax collection tax exemptions and property taxation.While noting that the fiscal framework has served the authorities well, the directors generally saw merit in considering options to strengthen the framework for managing mineral revenues including with a view to avoiding pro-cyclicality in public spending.In addition, the directors noted that the financial system remains sound and they welcomed the Botswana authorities’ intentions to step up monitoring of financial sector risks given the slowing economy.
While in Botswana, the team met with Bank of Botswana Governor, Linah Mohohlo, the Minister of Finance and Development Planning, Kenneth Matambo, Permanent Secretary at the Ministry of Finance and Development Planning, Solomon Sekwakwa, other senior government officials, and representatives from the private sector and development partners.