21 Mar 2016

The International Monetary Fund (IMF) directors have commended Botswana’s track record of prudent economic policies and sound institutions, which has led to low public debt and sizeable fiscal and foreign exchange savings.  

In a report issued at the conclusion of Article IV Consultation with Botswana, the IMF directors however note 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 remain favourable, although subject to downside risks.

IMF directors have supported the current accommodative macroeconomic policy stance adding the fiscal stimulus, is justified given the negative output gap, strong buffers and the need to close 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,” reads the statement.

The IMF states that in the medium term, fiscal consolidation will be important to safeguard fiscal and external stability.

They welcomed the government’s 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.

“In light of subdued prospects for revenues from the Southern African Customs Union (SACU) and risks about future diamond receipts, directors stressed the need to enhance non-mineral revenue mobilisation, notable in the areas of value added tax collection, tax exemptions, and property taxation,” the IMF states.

The IMF directors say the fiscal framework while it has served the government well, should be strengthened for managing mineral revenues including a view to avoiding pro cyclically in public spending.

They said the financial system remains sound, and welcomed the government’s intentions to step up monitoring of financial sector risks given the slowing economy.

“This includes yearly on site examinations of systematic banks, a stress test to assess household’s debt servicing capacity, implementation of Basil II requirements, improvements in access to credit information and development of formal macro prudential framework”. Ends