IMF says Botswana's growth faces chal­lenges ahead

The Pak Banker - - COMPANIES/BOSS -

The Ex­ec­u­tive Board of the In­ter­na­tional Mon­e­tary Fund (IMF) to­day con­cluded the Ar­ti­cle IV con­sul­ta­tion with Botswana. Af­ter a rapid re­cov­ery from the 2009 down­turn, GDP growth is es­ti­mated to have turned slightly neg­a­tive in 2015 ow­ing to a de­cline in the global de­mand for di­a­monds and cop­per. 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. In­fla­tion has been de­clin­ing over the past few years and is now close to the lower bound of the Bank of Botswana's ob­jec­tive range of 3-6 per­cent, re­flect­ing a suc­cess­ful mon­e­tary pol­icy, lower fuel prices, and an ap­pre­ci­a­tion of the Pula against the South African Rand.

Af­ter three years of sur­pluses, the govern­ment bal­ance has turned into a deficit, re­flect­ing lower min­ing rev­enues, a de­cline in rev­enues from the South African Cus­toms Union (SACU), and higher fis­cal spend­ing, part of which is re­lated to the Govern­ment Stim­u­lus Pro­gram. The deficit has been fi­nanced by draw­ing on pre­vi­ously ac­cu­mu­lated sav­ings and in­cur­ring a small amount of do­mes­tic debt. The ex­ter­nal cur­rent ac­count sur­plus has also been de­clin­ing, but is es­ti­mated to be in pos­i­tive ter­ri­tory. As Botswana en­tered the cur­rent down­turn with large fis­cal and for­eign re­serve buf­fers, the coun­try is well po­si­tioned to deal with the de­cline in ex­port de­mand.

A grad­ual eco­nomic re­cov­ery is pro- jected in the next three years, based on an ex­pected grad­ual in­crease in di­a­mond prices and fis­cal stim­u­lus, while in­fla­tion is ex­pected to re­main within the BoB's ob­jec­tive range. The 2016/17 bud­get sub­mit­ted to Par­lia­ment in Fe­bru­ary en­vis­ages a fis­cal deficit of about 4 per­cent of GDP as a re­sult of lower min­ing and SACU rev­enues and higher cap­i­tal ex­pen­di­tures. In the medium-term, the macroe­co­nomic frame­work en­vis­ages fis­cal con­sol­i­da­tion based on a grad­ual re­cov­ery of the min­ing sec­tor and ex­pen­di­ture ra­tio­nal­iza­tion (the au­thor­i­ties plan to con­tain the growth of wages and salaries and re­duce trans­fers to state-owned en­ter­prises). Lastly, the ex­ter­nal cur­rent ac­count sur­plus is pro­jected to nar­row fur­ther this year, but grad­u­ally re­verse to trend there­after along an ex­pected re­cov­ery in ex­port prices.

IMF Di­rec­tors com­mended Botswana's track record of pru­dent eco­nomic poli­cies and sound in­sti­tu­tions, which has led to low pub­lic debt and siz­able fis­cal and for­eign ex­change sav­ings. Di­rec­tors noted that, with the re­cent weak­en­ing of the global de­mand for di­a­monds, the near?term out­look has be­come more chal­leng­ing. They con­curred that the coun­try is well?po­si­tioned to weather the cur­rent down­turn, and that medium?term prospects are fa­vor­able, al­though sub­ject to down­side risks. Di­rec­tors sup­ported the cur­rently ac­com­moda­tive macroe­co­nomic pol­icy stance. 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, Di­rec­tors en­cour­aged the au­thor­i­ties to ex­er­cise cau­tion and fo­cus on the most prof­itable and vi­able in­vest­ments.

Di­rec­tors em­pha­sized that, 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, 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. Di­rec­tors noted that the fi­nan­cial sys­tem re­mains sound, and wel­comed the au­thor­i­ties' in­ten­tions to step up mon­i­tor­ing of fi­nan­cial sec­tor risks given the slow­ing econ­omy. This in­cludes yearly on?site ex­am­i­na­tions of sys­temic banks, a stress test to as­sess house­holds' debt ser­vic­ing ca­pac­ity, im­ple­men­ta­tion of Basel II re­quire­ments, im­prove­ments in ac­cess to credit in­for­ma­tion, and de­vel­op­ment of a for­mal macro­pru­den­tial frame­work.

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