The International Monetary Fund (IMF) has advised Botswana to forge ahead with fiscal consolidation, through improving revenue measures and cutting down on expenditure, and maintained their stance for the country to implement structural reforms.
The Executive Board of the IMF recently concluded the Article IV consultation with Botswana, noting the country’s prudent macroeconomic policies and strong recovery from the pandemic, but highlighted the continued decline in external and fiscal buffers and the expected depletion of diamond reserves in coming decades.
“Directors agreed that fiscal consolidation is critical to preserve fiscal sustainability and support the accumulation of foreign exchange reserves. They welcomed the authorities’ medium-term plan to achieve a fiscal surplus by the financial year 2025, noting the need for measures to contain expenditures and mobilize additional revenues,” the IMF statement said.
“Some directors urged cautious implementation of this year’s planned fiscal expansion to avoid hindering disinflation and to support the rebuilding of fiscal buffers. Directors noted that the credibility of the medium- term adjustment path could be enhanced through the introduction of an expenditure rule.”
The IMF welcomed the 2023 Botswana’s Financial Sector Assessment Program (FSAP) noting that the financial system stability assessment (FSSA), appears broadly sound, stable, and resilient to a wide range of shocks. They positively noted the good progress in strengthening legal and regulatory frameworks for financial stability and AML/CFT, and Botswana’s removal from the FATF grey list.
The IMF concurred that enhancing the interbank and government bond markets would support financial sector development, strengthen public financial management, and improve monetary policy transmission. They stressed the need to enhance financial inclusion by strengthening digital financial services and the regulatory frameworks for lending to MSMEs.
The directors underscored the importance of advancing structural reforms to promote economic diversification and private sector development, thereby boosting growth and employment potential, and reducing inequality. They highlighted, as policy priorities, trade facilitation and integration, comprehensive State Owned Enterprises (SOE) reforms, improving the business environment, enhancing climate change resilience, implementing the digitalization strategy, and more targeted support for high-productivity, export-led sectors.
The directors’ visit follows another June IMF team visit that was led by Mr. Luc Eyraud, the Division Chief in the IMF African Department and Mission Chief for Botswana, which held discussions on the 2023 Article IV consultation.
Eyraud’s team said supply-side structural reforms are necessary to support the diversification of the economy and increase the relative size of the private sector, which will help boost the economy’s growth potential, reduce unemployment, and enhance resilience to external shocks.
“Policy priorities include trade facilitation and integration, parastatal reform, more efficient and climate-resilient infrastructure investment, and more targeted support for high-productivity, export-oriented sectors,” according to Eyraud.