A team from the International Monetary Fund (IMF), led by Mr. Papa N’Diaye, Head of Mission for the Republic of Botswana and Head of the Regional Studies Division of the Africa Department, held virtual discussions on the 2020 consultation under of Article IV from March 8 to 23, 2021. At the end of the discussions, Mr. N’Diaye made the following statement:
“Botswana entered the COVID-19 crisis with larger buffers and lower public debt than other Sub-Saharan African (SSA) countries, but significantly less than in the past. The country was grappling with structural challenges, persistent negative external shocks and delays in adjustment which caused a weakening of international reserves and fiscal position amid high unemployment.
“The pandemic has exacerbated Botswana’s economic challenges. While strict containment measures have helped limit the spread of the virus and save lives, heavy economic dependence on diamonds and contact-intensive activities has caused a sharp contraction in GDP, one deepest in sub-Saharan Africa. The current account deficit widened and foreign exchange reserves continued to fall, while remaining above adequate levels. The government implemented a significant public wage increase agreed in 2019 and rolled out an economic relief program to counter the effects of the COVID-19 crisis. The relief program helped save the population. means of subsistence.
“In this context and despite a second wave of COVID-19 infections, a recovery is underway, with GDP growth expected at 8.3% in 2021, driven by a strong rebound in mining activity, the loosening restrictions on mobility, and recent public wage increases. Fiscal and external positions should gradually strengthen with favorable terms of trade. However, the uncertainty is high and the risks are dominated by the evolution of the pandemic and the roll-out of vaccines in Botswana and globally, and lower than expected. At the same time, continued implementation of supply-side reforms could promote private sector activity and diversify sources of growth.
“The first priority remains securing and successfully deploying vaccines to a sufficiently large part of the population to keep the pandemic under control and prevent health systems from being overwhelmed.
“The next priority is to build Botswana’s resilience to shocks and advance supply-side reforms to promote private sector activity and diversify its sources of growth. In this context, the mission welcomes the commitment to fiscal sustainability and recommends the adjustment foreseen in the draft 2021. / 22 budget be executed without further delay. In the baseline scenario, the envisaged pace and magnitude of consolidation and the change in the composition of expenditure are appropriate. The gradual reduction of the budget deficit will put the budgetary position on a sustainable basis, while targeting investments and human resources. capital development could increase productivity, create jobs and help diversify the economy and sources of income. At the same time, the incentives envisaged for training and financial support to transforming sectors will facilitate the reallocation of factors to new sectors.
“There is a need to maintain targeted support to illiquid but solvent businesses and affected households and to subordinate or condition aid to the state in order to reduce moral hazard. This will help address the uneven nature of the recovery across sectors and mitigate the regressive impact of planned measures. increase in the rate of VAT and other taxes and charges on the most vulnerable. Given the uncertainty over the evolution of the health crisis and mining revenues, the mission is of the opinion that the recommended targeted aid should be financed by both revenue and expenditure measures.
“Budget reforms are needed to lock in consolidation efforts. They include the reform of the civil service, the acceleration of plans to rationalize the parapublic sector and improve its governance, and a strengthening of the budgetary framework to better anchor budgetary policy and increase credibility. In addition, mobilizing domestic savings to finance the deficit requires coordinated efforts to deepen the bond market.
“Beyond fiscal policy, the accommodative stance of monetary policy is appropriate and must be maintained, while carefully monitoring the second-round effects of supply shocks on inflation and inflation expectations, as well. than the evolution of credit.
“The mission welcomes the recent increase in the crawl rate of Botswana’s exchange rate anchor, which has helped the economy adjust to the COVID-19 shock.” Going forward, the Bank of Botswana should use the flexibility offered by its current exchange rate regime to help the economy adjust to shocks, ensure external sustainability and facilitate structural transformation.
The authorities’ interventions also helped to mitigate immediate macro-financial risks. As the health crisis eases, COVID-19-related abstention measures are expected to be rolled back, adequate liquidity maintained in the domestic market, and risks closely monitored. Building on recent progress in the fight against money laundering / CFT deficiencies are a priority.
“The resolute implementation of the ERTP will diversify the sources of growth and promote private sector activity, thereby creating jobs.” Successful implementation of this strategy requires continuous evaluation of existing sector programs, assessment and adaptation to changes in domestic and external markets, focusing on promising sectors, addressing market and market failures. government, and the resolution of major bottlenecks if necessary (small scale, inadequate skills, lack of competition, coordination failures, information asymmetries). “