IMF expects Botswana’s return to growth path
Pauline Dikuelo | Monday June 6, 2022 06:00
In its World Economic Outlook released last month, the IMF forecast that Botswana’s economy would expand by 4.3 percent this year, the highest among its regional peers and comfortably above the 3.8 percent average expected for sub-Saharan Africa.
This week, IMF researchers released a further update following a board assessment conducted by the African Department in conjunction with local fiscal and monetary officials.
According to the update, the country’s growth is estimated at about four percent in the medium term, below the five percent required to attain the authorities’ goal of reaching high income status by 2036.
The analysis by the IMF team led by the assistant director in the IMF African Department and Mission Chief for Botswana, Papa N’Diaye, suggests that robust diamond production, favourable terms of trade, improvements in tourism, and smaller portfolio outflows should further strengthen Botswana’s external position.
“The prolonged sanctions against Russia which is the largest rough diamond producer could increase demand for Botswana’s diamonds,” the researchers stated.
However the IMF analysts said the risks to the outlook remain elevated as growth will depend heavily on the path of commodity prices. In addition, long outstanding challenges remain which include unemployment which rose to 26% in 2021 as well as poverty and inequality which have also increased.
Higher food and energy prices are also expected to weigh on fiscal and external balances and threaten food security and energy affordability for the most vulnerable populations.
Further the researchers said monetary policy tightening will be required to reduce inflation pressures, with the key having opened the year above 10%. The financial sector appears sound, but the impact of higher rates, declining liquidity, and the recent monetary policy reforms will have to be monitored.
The team called for continued fiscal consolidation, stronger policy frameworks, and the advancement of structural reforms to create a more resilient and diversified economy.
“The country should avoid excessive reliance on import substitution and restrictions to promote industrialisation but rather accelerate implementation of the Reset Agenda to diversify the economy towards financial services, manufacturing, and tourism,” the researchers stated. “Reforms should include deeper trade integration, implementation of planned visa and work permit reforms, and faster investment in renewable energy. “This will also help create the jobs needed to reduce unemployment and absorb the 35,000 annual labour market entrants.”