Botswana’s economy is expected to recover this year, with an expected 8.3% growth, thanks to improving global demand for diamonds, easing restrictions on mobility and expansionary fiscal policy.
By Bilkiss Mentari
The recovery is expected to be uneven across sectors, depending on improvements in the domestic and external environment, while current account and budget deficits are expected to narrow, reflecting the expected improvement in global demand for diamonds, the gradual elimination of one-off expenses related to Covid, and the implementation of measures to improve revenue and consolidate expenses.
Inflationary pressures are expected to increase temporarily in the short term, following the rebound in oil prices, the increase in the fuel tax and the rate of the value added tax, as well as the increase in administered prices.
However, inflation is expected to stay within the central target of 3-6% over the medium term.
A “strong uncertainty” linked to the evolution of the pandemic
Growth prospects are therefore subject to great uncertainty, with downside risks mainly stemming from the evolution of the pandemic, the availability and deployment of vaccines, and lower-than-expected diamond revenues.
In contrast, faster deployment of vaccines in Botswana and around the world could boost growth, while vigorous implementation of supply-side reforms could promote private sector activity and diversify sources of growth.
As part of the International Monetary Fund (IMF) report following the conclusion of the Article IV consultations with Botswana, IMF Executive Directors noted that prudent management of mineral resources and a range of policies and very strong policy frameworks allowed Botswana to enter the crisis with more fiscal leeway than most countries and they commended the authorities for their decisive response to the pandemic.
However, the directors observed that the recovery expected this year remains subject to downside risks, in particular due to the evolution of the pandemic. They insisted on the need for a successful vaccine deployment to support the recovery.
Structural reforms needed
Going forward, they stress the need to engage decisively in structural reforms in order to increase diversification, address the challenges of climate change and boost potential growth.
Directors also favored maintaining targeted support to businesses and households until the recovery takes hold, and they welcome the planned fiscal consolidation through a combination of revenue and income measures. spending, which will be key to rebuilding buffers, guarding against shocks and creating fiscal space for growth-oriented investments.
However, Directors note that further fiscal consolidation will require civil service reform, streamlining of parastatals and improving their governance, as well as strengthening the fiscal framework.
They are also in favor of maintaining the accommodative stance of monetary policy, while stressing the need to monitor the second-round effects of supply shocks and discretionary measures on inflation and expectations, as well as developments. credit.
In this regard, the Botswana authorities were encouraged to use the exchange rate flexibility under the existing crawl arrangement to help the economy adapt to shocks and facilitate structural transformation to improve competitiveness. .
A “healthy” financial sector
With the financial sector considered “healthy”, IMF administrators further encouraged the authorities to monitor risks, including improving reporting, regularly stressing and providing financial surveillance.
They did, however, agree on the need to maintain targeted support to solvent but illiquid businesses, while reducing moral hazard, and underlined the need to untie Covid-related abstention measures as the health crisis wears off. ; they also encouraged the authorities to clarify the role of development banks and deepen the domestic bond market.
In view of the above, the authorities were urged to address the remaining shortcomings in the fight against money laundering and terrorist financing in order to be removed from the gray list of the Task Force. financial.
Directors stressed that the successful implementation of the economic recovery and transformation plan is essential to accelerate structural transformation, create jobs and promote inclusion.
Source: African News Agency