Diversification Critcial to Fiscal Sustainability in Botswana Says IMF Staff Team Report

Jan 12, 2016

An IMF Staff team that visited Botswana in December for discussions has suggested various measures for reforms in the short and medium term that will help the economy “to diversify away from diamonds, which will be critical to ensure fiscal sustainability and enable (the) transition into high-income status”.

The team, led by Enrique Gelbard, released a statement at the conclusion of its visit, but pointed out that the views expressed in it do not necessarily represent the views of the IMF's Executive Board, which will take decisions based on the team’s final report.

Noting that Botswana's pace of economic activity slowed in 2015 owing to weaknesses in the global demand for diamonds, the team said that real GDP growth was estimated at 2.3%, with a gradual recovery projected to start in 2016. It added that the country is well positioned to weather the current slowdown.

Boosted by a gradual recovery in the global diamond market, low domestic interest rates, and the impact of the government's Economic Stimulus Program, the economy is expected to pick up in the next few years, the statement said, adding that the authorities are contemplating a number of medium-term measures to embed in the forthcoming National Development Plan.

Some of the key reforms that the team wants the government to ‘accelerate’ relate to involvement of the private sector, skill training and enhancement of profitabliy of large state-owned enterprises, among others. It also welcomed the moves to remove impediments to doing business and setting up Special Economic Zones, but cautioned aggainst costly tax incentives.

The team also recommended adopting a simple fiscal rule that could enable improvements in the balance between non-mining revenues and recurrent government spending, together with a clearly prioritized public investment program to help ensure fiscal sustainability and use mining revenues for the benefit of future generations.

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