IMF upgrades Botswana growth forecast

MBONGENI MGUNI
Staff Writer | Wednesday October 10, 2012 00:00

 

Released yesterday, the October edition of IMF's World Economic Outlook (WEO) projects that Botswana's real Gross Domestic Product (GDP) will grow by 3.8 percent this year, up from the 3.3 percent forecast in the April edition of the same study.The October WEO also expects inflation to average 7.5 percent this year and the current account balance to be positive at 3.9 percent of GDP, pointing to stronger exports of goods, services and assets over imports.

However, the tone of the latest WEO is largely dark, focussing on the numerous threats to the improved projections for Botswana and most of the sub-Saharan in 2012. According to IMF researchers, chief among these threats for Botswana and other southern African states, will be the potential spillover of subdued growth in South Africa stemming from that country's close integration with the crisis-ridden Euro area.'The primary channel for spillovers is trade,' the IMF said.'South Africa, strongly linked to Europe, would be particularly affected, with possible repercussions for some economies in southern Africa.'

Botswana's economy is closely linked to the regional powerhouse, with South Africa supplying more than 70 percent of the country's goods, while the Pula's value is linked via a currency basket to the Rand.The ripple effects of a slowdown in the South African economy could transmit to Botswana via any and all of the numerous trade, investment and monetary linkages between the two countries.The IMF also said the risk of higher prices to net food importers like Botswana would erode foreign savings at both national and government level.However, a surprise threat to sub-Saharan Africa identified by the IMF is the potential for a sharp slowdown in the Chinese economy.'A potential sharp slowdown in China would also affect the region adversely, not only because of the region's deepening trade linkages with China in the past several years or through the effect on global commodity prices, but also because of China's increasingly important contribution to the region's FDI and official financing,' the IMF said.For Botswana, Chinese demand has propped up prices of commodities such as copper, nickel and coal, which are all key GDP contributors as exports and jobs creators at various mines.The IMF urged governments to continue strengthening policy buffers while also preparing contingency plans for any downside risks.The Pula Fund, one of the country's key buffers against financial stress at national level, has been on the mend since government heavily dipped into it during the global recession.According to Bank of Botswana data, the Pula Fund fell from P51.6 billion at the end of 2008 to P43.5 billion by the end of 2009, before recovering to P55.6 billion by the end of July 2012.Finance and Development Planning Minister, Kenneth Matambo has also said government will transfer all budgetary surpluses to rebuilding fiscal buffers in order to mitigate any economic threats.