IMF bullish on Botswana growth prospects
Brian Benza | Thursday August 10, 2017 18:00
In a country report released this week, the IMF said following a downturn in 2015, annual gross domestic product (GDP) growth is expected to gradually increase to 4.8% by 2018, supported by a recovery in the diamond market and moderate fiscal stimulus.
The IMF’s growth projection is more bullish than government forecasts. Presenting the 2017 national budget in February, finance minister, Kenneth Matambo said the local economy was expected to grow by 4.2% this year.
“Improved prospects for the diamond sector are expected to lead to a gradual increase in diamond production and international prices in the medium term, while public investment spending is projected to increase during the next two years.
These trends could translate in annual GDP growth rates of nearly five percent by 2018. The forecast assumes a gradual pace of reforms to improve the efficiency of the public sector and foster private sector activities,” the IMF said.
On the negative side, the Bretton Woods institution said Botswana’s outlook could be affected by adverse developments on advanced countries’ economies or a significant deterioration of economic conditions in South Africa, including the possibility of lower Southern African Customs Union (SACU) revenues.
Looking ahead, the IMF said despite a rebound in diamond revenues, reforms to raise domestic revenues will be important to fund future expenditure and strengthen fiscal sustainability, while proceeding with plans to enhance financial supervision will reinforce the soundness of the financial system.
While the economy is seen performing well in the short to medium term, the IMF says Botswana is still haunted by low levels on inclusive growth as evidenced by the high unemployment and inequality levels.
Despite high rates of economic growth during the past two decades, unemployment remains high as growth has been centred on diamond production and diversification away from diamonds has been rather slow. The capital-intensive nature of mining activities coupled with limited expansion of the private sector has resulted in the 33% youth unemployment rate and a high-income inequality of 60 points as measured by the Gini index.
“A focused and determined approach will be needed to foster inclusive growth. In the latest National Development Plan (NDP) 11, the authorities recognise these shortcomings and the next step should be to devise and/or implement a few plans with a manageable set of high-impact measures to improve the efficiency of the public sector, build skills in the labour force, and foster the development of a competitive private sector,” the report read.
The report was released following discussions that took place in Gaborone during May 2017.
While in the country, the IMF team led by Enrique Gelbard met with the governor of the Bank of Botswana, Moses Pelaelo, the Minister of Finance and Economic Development, Matambo, other senior officials, and representatives of the donor community, civil society, and the financial sector.