An International Monetary Fund (IMF) team led by Lamin Leigh visited Gaborone during June 28-July11 to conduct the 2013 Article IV Consultation discussions with Botswana. The mission’s work focused on reviewing recent economic developments and prospects and policies to ensure continued macroeconomic stability and growth. The mission met with Minister of Finance and Development Planning, Honorable O. Kenneth Matambo; Bank of Botswana Governor, Linah K. Mohohlo; Permanent Secretary Ministry of Finance and Development Planning Solomon Sekwakwa; senior government officials, development partners, and representatives from the private sector and civil society.

Mr. Leigh issued the following statement in Gaborone today, outlining the mission's preliminary conclusions:

“After two consecutive years of strong growth post-global economic crisis, real GDP growth slowed down to about 4 percent in 2012. This deceleration was driven by the decline in mining sector growth owing to the subdued global demand for diamonds, which continued during the first quarter of 2013. At the end of May 2013, inflation at 6.1 percent was markedly below the December 2011 level of just above 9 percent, and close to upper end of the Bank of Botswana’s (BoB) medium-term objective range of 3–6 percent.

“Botswana’s fiscal and external positions remain strong thanks in large part to the government’s prudent macroeconomic management. The budget was balanced in fiscal year (FY) 2012/13 for the first time since the substantive countercyclical fiscal expansion was launched in FY2008/09. Monetary policy was accommodative and the Bank of Botswana (BoB) reduced its policy rates by a cumulative 100 basis points during the period of April to June 2013

“Looking ahead, real GDP growth is expected to remain broadly unchanged in 2013 at about 4 percent. Strong non-mining growth is expected to offset the subdued mining production. Headline inflation is likely to remain above the BoB’s medium-term objective range in 2013, but is expected to converge to the upper end of the objective range in the first quarter of 2014.

“The FY2013/14 budget targets a small surplus and is centered on growth-friendly consolidation given the weak external economic environment. The budget’s emphasis on reining current spending, maintaining growth-promoting capital projects, rebuilding fiscal buffers and improving the quality of spending is well placed. The mission also welcomes the key objectives of the mid-term review of 10^th National Development Plan (NDP10) for a simplified tax system with high compliance and a low cost of administration. The mission recommends that the government also broadens the tax base through rationalizing the large number of discretionary tax incentives.

“Botswana’s banking system is profitable and well-capitalized with relatively low nonperforming loans and adequate buffers to smooth shocks. The mission supports the government’s emphasis on greater financial inclusion and its commitment to provide adequate safeguards to preserve the stability of the financial system. Thus the high concentration of banks’ loans to households and the acceleration in the growth of unsecured lending warrants close monitoring. The mission recommends that appropriate measures be put in place to temper the rate of increase in household unsecured borrowing. In this respect, the mission commends efforts made by the BoB in putting together elements of such measures through the establishment of its financial stability unit.

“The recent mid-term review of the NDP10) is important as it stresses the government’s intention to reinvigorate the implementation of reforms to lay the foundations of greater private sector development in Botswana and enhance greater economic diversification. The wide-ranging vision for inclusive growth and jobs includes many proposals to improve productivity and competitiveness. The authorities should also leverage Botswana’s strong physical capital and quality of its institutions and improve the skill base of the labor force to explore knowledge-based service sectors as additional drivers of growth. Delivering good outcomes from these policies would require supportive measures to liberalize the service sectors and reduce the domestic regulatory burden for firms.

“Finally, the mission would like to express its sincere gratitude to the Botswana authorities for the consistently high quality of the policy discussions and for their warm hospitality.”