- Reduced VAT rate (from 14 to 12%) to reduced revenues
- External borrowing to finance deficit, increasing public debt
- Fiscal consolidation to turn deficit into a surplus through SOE reforms
Strong demand for diamonds, increased copper production and an uptick in international tourist arrivals are expected to play a critical role in supporting Botswana’s economic growth in 2022 and beyond, the World Bank has said.
Growth at 4.1%
According to the Bretton Woods institute, following a robust growth rebound in 2021 (11.4 percent), Botswana’s economic growth is projected at 4.1 percent in 2022 and to average 4 percent during 2023-2024 with diamonds, copper production and increased tourism playing a crucial role.
“Though inflation is expected to remain in double figures in 2022, Botswana’s relatively strong public sector governance and predictable monetary policy framework will support macroeconomic stability in the medium term,” the World Bank says in its recent report titled Macro Poverty Outlook for Botswana: October 2022.
The report notes that Botswana’s economic outlook hinges on the course of the war in Ukraine, diamond prices, the COVID-19 pandemic and implementation of fiscal consolidation and economic diversification reforms.
“The approved short-term fiscal interventions to cushion households against rising inflation is projected to increase the fiscal deficit in 2022, despite the higher performance of mineral revenues,” it warns.
“The measures (VAT rate has declined from 14 to 12 percent with zero rating of VAT for cooking oil and fuel) announced in July will lead to reduced revenues.”
The World Bank notes that the projected deficit will be financed through external borrowing, increasing public debt.
“However, in the medium-term, the fiscal balance is projected to turn into a surplus as authorities move ahead with fiscal consolidation focused on the wage bill, subventions, and SOE reforms,” the report says.
“The current account balance is projected to be in surplus in the medium-term, as the rebound in diamond production and favourable terms of trade owing to subdued diamond supply in Russia anchor the projected drop in SACU revenues.”
The World Bank report shows that Botswana’s poverty – under the new upper-middle-income poverty line – is expected to decline slightly to 62.7 percent in 2022.
“A sustained reduction in poverty and inequality will require further progress on diversification and digitalisation reforms to enhance access to good private-sector jobs,” it says.
“There is a need to expedite the implementation of key strategic priorities by developing infrastructure, expanding social programmes, and improving public service delivery.”