09 Aug 2017

Executive Board of the International Monetary Fund (IMF) says the local economy is undergoing cyclical recovery and the outlook is broadly positive.  

In a statement released following Article IV Consultation with Botswana, IMF has projected the annual real GDP growth to approach five per cent in the near term driven by gradual rebound in the global diamond market and public investment.

The IMF states that prudent financial policies are expected to maintain inflation within the three to six per cent objective range set by Bank of Botswana.

“In the medium term, the outlook is also positive and risks are balanced,” it  notes.

The IMF states that government’s macroeconomic policies are also appropriate.

It states that the fiscal stance articulated in the 2017/18 budget and the Medium Term Expenditure Framework entails small deficits over the next two fiscal years and a rebalancing of expenditure composition toward development spending.

To the IMF, this is consistent with a small output gap and the need to upgrade the water and electricity infrastructure.

Government has planned to have budget surpluses from 2019/20, with a tighter control of the wage bill and of transfers to parastatal organisations.

At present, government’s neutral monetary policy stance is appropriate as there does not seem to be room to lower interest rates.

“Botswana’s exchange rate regime continues to serve the country well,” it states.

The IMF further states that the domestic revenue mobilisation will provide added funding for development spending and help protect buffers.

The IMF Executive Board, which was in the country on July 28, states that given the volatility of diamond and revenues from the Southern African Customs Union and a relatively low domestic tax effort, there is a need to pass into law and implement the new Tax Administration Act as well as to strengthen the large taxpayers’ unit.

“In addition, it would be important to consider streamlining VAT exemptions, simplifying the personal income tax, and accelerating plans to register and re-evaluate properties,” it says.

The IMF has called for further financial sector reforms, saying this will bolster stability.

They called upon government to proceed with plans to set up the macroprudential policy function, establish a crisis resolution framework, finalise the implementation of Basel II requirements, and strengthen risk-based supervision of non-bank financial institutions.

The Board also notes that fostering private sector growth will require determination and focus on key reforms, adding that achieving the long-sought objectives of inclusive growth and diversification will require political commitment, improved capacity and coordination among government agencies, and focus on a few plans with a manageable set of high-impact, time-bound, monitorable reforms.

Government has also been called to proceed with measures to improve the planning, prioritisation, and execution of public investment programmes.

Further, government should build capacity in the management of public-private partnerships, improve the financial monitoring and evaluation of parastatals organisations and accelerate the privatisation of key loss-making enterprises, make the energy regulator fully operational, review the structure of electricity subsidies to set rates in line with commercial criteria and avoid political interference and lower water losses.

The IMF has also called for the enhancement of education and to reduce skill mismatches.

Reforms to lower the costs of doing business and foster financial deepening will also promote private sector development.

Talking about economic diversification, the IMF notes that distortions should be removed and competitiveness improved.

The IMF notes that capacity constraints, high transport costs, and the risks associated with industrial policies argue for an approach based on removing distortions and investing wisely in key public infrastructure. ENDS