June 1, 2012
A mission from the International Monetary Fund (IMF) visited Gaborone during May 21-June 1 to conduct the 2012 Article IV Consultation discussions with Botswana. The mission's work focused on reviewing recent economic developments, prospects and risks, and policies to ensure continued macroeconomic stability and growth. The mission met with Minister of Finance and Development Planning, the Honorable Kenneth Matambo; Bank of Botswana Governor, Ms. Linah K. Mohohlo, Mr. Solomon M. Sekwakwa, Permanent Secretary at the Ministry of Finance and Development Planning; senior government officials, development partners, and representatives from the private sector and civil society.
At the end of the mission, Mr. Lamin Leigh, IMF Mission Chief for Botswana, issued the following statement in Gaborone today:
“The mission forecast that overall real GDP growth would be about 4 percent in 2012 compared to 5 percent in 2011. The international diamond market showed some signs of recovery in the first quarter of 2012, following a relatively poor performance towards the end of 2011. Non-mining GDP growth is likely to moderate on the back of the imminent completion of large construction projects. Going forward, the current fragile external environment poses considerable uncertainty on the global economic outlook and mineral export demand. Thus, the period ahead will require a delicate balancing act on the implementation of macroeconomic policies.
“While inflation is currently higher than the Bank of Botswana’s medium-term objective range of 3 -6 percent, it has trended downward in recent months, and at this stage, there appears to be no firm evidence of generalized price pressures in the domestic economy. Thus, the mission supports the Bank of Botswana’s current accommodative monetary policy stance.
“The mission commends the Government of Botswana’s on the FY2012/13 Budget which targets a small fiscal surplus. The budget is centered on further expenditure restraint, while improving the quality of spending to ensure value for money. Specifically, the mission continues to support the emphasis on expenditure control as the government’s spending envelope (above 30 percent of GDP), is high by international standards, thus warranting a thorough assessment of pockets of unproductive spending and ways to increase efficiencies. The mission also recommends the rebalancing of revenue-raising and expenditure-cutting measures. This could be achieved by complementing the measures in the Budget with policies that widen the domestic tax base and prepare the economy for an eventual decline in diamond revenues. Measures in this regard include a judicious rationalization of tax exemptions and improvements in tax administration to broaden the revenue base.
“The mission welcomes the emphasis given by the government to broaden access to financial services and improve financial intermediation. While Botswana’s financial system has grown and diversified considerably over the last decade, the level of financial intermediation is relatively low compared with other high middle-income countries although it has improved in more recent years. Thus, greater financial development and inclusion are consistent with current government policies as described in both the Vision 2016 and National Development Plan (NDP) 10. The mission also welcomes the emphasis placed in the FY2012/13 budget speech on enhancing the capacity of Non-Bank Financial Institutions Regulatory Authority (NBFIRA).
“The government’s emphasis on poverty eradication, inclusive growth, tackling the high level of unemployment and diversifying the economy is well placed. Considerable strides have been made towards reducing absolute poverty as reflected in the Botswana Core Welfare Indicators survey of 2009/10. Efforts to encourage greater financial inclusion and measures to target inequality at its sources should together help enhance inclusive growth. Tackling the high level of unemployment in Botswana will require faster economic growth and addressing distortions in the labor market including the skill mismatch. The government’s tertiary education reform program and the establishment of the Human Resource Development Council, combined with the graduates’ internship program would contribute to addressing the skill mismatch in the labor market. The mission urges the government to move ahead with a number of regulatory reforms to improve the business climate to support the goals of the recently approved Economic Diversification Drive (EDD).