- Says the country’s economic growth is projected at 4.3 percent in the current year
- Notes that Botswana’s unemployment rate rose to 26 percent in 2021, while poverty
and inequality have also increased
Botswana’s economic recovery from the pandemic should continue into 2022 amid higher prices and demand for diamonds, good rainfall in some parts of the country and increasing international tourist arrivals, the International Monetary Fund (IMF) has said.
According to IMF, the country’s economic growth is projected at 4.3 percent in the current year with robust diamond production, favourable terms of trade, improvements in tourism, and smaller portfolio outflows expected to strengthen Botswana’s external position even further. IMF says buffers, particularly those held by the government, should continue to recover.
“Despite the strong outlook, long-standing challenges remain,” says IMF in a statement released recently. “Unemployment rose to 26 percent in 2021, while poverty and inequality have also increased. Inflation exceeded the central bank’s medium-term objective range of 3 – 6 percent in 2021 and increased sharply in the first months of 2022. Relatively low fiscal buffers and continued reliance on mining activity expose Botswana to external shocks, such as geopolitical and climate shocks. Some progress has been made on diversification and digitalization reforms, but the authorities are also relying increasingly on inward-looking policies, including import restrictions.”
Relative to the budget, IMF says the country needs to temporarily increase social transfers to help the most vulnerable households cope with the spillovers from the war in Ukraine. “This additional temporary support will have a limited impact on the 2022 fiscal deficit,” says IMF. “Beyond 2022, as energy and food prices ease, the additional pressure on the budget will fall.
Additionally, IMF is of the view that the country’s other fiscal challenges require institutional reform. “The recently announced wage settlement was above the budgeted amount and adds to the government’s footprint in the economy,” analyses IMF. “The authorities are considering several staff proposals, including a new framework for public wage formation, and a new expenditure rule which, combined with a target path for financial assets, should provide a long-term source of income and build enough buffers to counter shocks. In addition, the privatization of identified parastatals and efforts to close the tax gap must proceed as planned.”
Meanwhile, IMF says Botswana’s economic growth will depend heavily on the path of commodity prices. “An abrupt slowdown in China or a protracted war in Ukraine could weaken global demand, thus lowering demand for diamonds,” notes IMF. “However, prolonged sanctions against Russia (the largest rough diamond producer) could increase demand for and prices of Botswana’s diamonds. Outbreaks of more lethal and contagious COVID-19 variants could further hamper the recovery, particularly of tourism. Faster tightening of monetary policy in key advanced economies could trigger volatility in global markets, prompt capital outflows, and reduce demand for diamonds. Climate shocks continue to pose a threat to agriculture, mining, and tourism. “
IMF says Botswana’s growth is estimated at 4 percent in the medium term, below the 5 percent required to attain the authorities’ goal of reaching high-income status by 2036.