The International Monetary Fund (IMF) has projected that the domestic economy will expand by 3.7 percent in 2016 compared to an estimated 0.3 percent contraction in 2015. In its latest communiqu├®, the IMF says Botswana will experience a gradual economic recovery in the next three years, based on an expected gradual increase in diamond prices and fiscal stimulus.
After a rapid recovery from the 2009 downturn, GDP growth is estimated to have turned slightly negative in 2015 owing to a decline in global demand for diamonds and copper. At the same time, non-mining activities, while recording positive growth over the year, remained subdued owing to spillovers from lower mining activity, a regional drought, and electricity and water shortages.
“GDP growth is estimated to have turned slightly negative in 2015 owing to a decline in the global demand for diamonds and copper,” the IMF said in a statement late on Thursday.
The latest projections follow IMF’s Executive Board’s recent conclusion of Article IV consultation with Botswana. Under Article IV of the IMF”s Articles of Agreement, the IMF usually holds bilateral discussions with members every year. A staff team visits the country, collects economic and financial information and discusses with officials the country’s economic developments and policies. On return to headquarters the staff prepares a report which forms the basis for discussion by the Executive Board.
The IMF Directors supported Botswana’s current macroeconomic policy stance which they say is “accommodative.” They noted that the fiscal stimulus, envisaging high levels of public investment is justified given the negative output gap, strong buffers, and the need to close the infrastructure gap. Nevertheless, in light of implementation and capacity constraints, the Directors encouraged authorities to exercise caution and focus on the most profitable and viable investments. At the same time, IMF says in the medium term fiscal consolidation will be important to safeguard fiscal and external stability. In this regard, they welcomed the authorities’ commitment to return to fiscal surpluses within the next three years by containing current spending, especially the size of the wage bill and transfers to state-owned enterprises (SOEs). In light of subdued prospects for revenues from the Southern African Customs Union and risks about future diamond receipts, IMF Directors stressed the need to enhance non-mineral revenue mobilization, notably in the areas of value-added-tax collection, tax exemptions, and property taxation. While noting that the fiscal framework has served the authorities well, Directors generally saw merit in considering options to strengthen the framework for managing mineral revenues, including with a view to avoiding pro-cyclicality in public spending.