Botswana

major macro economic indicators

(e): Estimate (f): Forecast *Fiscal year from 1st April - 31st March

Risk assessment

Steady growth keeps the recovery on track

The diamond-rich economy should continue to benefit from improved terms of trade: demand and prices for diamonds are expected to increase, largely because of trade sanctions against Russia, the world's largest producer of rough diamonds. Similarly, copper production is expected to increase with the expected launch of production at the Motheo mine operated by Sandfire Resources, thereby supporting activity. As the COVID-19 restrictions become less severe, the tourism sector, which accounted for 15% of GDP before the crisis, will gain further momentum. Moreover, the year 2023 will see the implementation of the "Reset Agenda" led by President Masisi, which aims to diversify the economy by developing financial services, manufacturing and tourism. More generally, this agenda seeks to prioritise the civil service reform, digitalisation and the development of value chains (notably by working on diamonds to increase their value added). This should increase the resilience of the economy and enable job creation. However, growth could be constrained by the tightening of monetary policies in advanced economies, impacting aggregate demand and promoting volatility in global markets, as well as in capital and investment flows. Domestic inflation is expected to remain high, due to the impact of the war in Ukraine on energy and food prices: it will continue to weigh on the purchasing power of the most vulnerable households and is likely to lead to monetary policy tightening, which has already begun with the 100 basis point increase in the Monetary Policy Rate between April and June 2022. Such measures will contribute to maintain the pula's peg to the rand and the SDR. This could also weigh on domestic private investment. Finally, a fiscal consolidation plan is planned, which could lead to a reduction in social transfers and public subsidies.

Public and external accounts strengthen

While the health response to the COVID-19 crisis, as well as the expenditures related to the associated "Economic Recovery and Transformation" plan, led to a deterioration of the public accounts, the public balance should improve and turn slightly positive in the 2022-2023 fiscal year, thanks to the fiscal consolidation plan aimed at controlling public spending, better allocating it to development objectives, and restoring budgetary margins to pre-COVID-19 levels. Medium-term government reserves are expected to be rebuilt, having been depleted in recent years due to a greater reliance on reserves than on public debt. Despite possible further subsidies to mitigate the impact of inflation on households, expenditure will be contained by controlling the wage bill, notably through savings on vacant posts and the freezing of civil service salaries, and better targeting of social spending. Increased efficiency in tax administration and super-profits from the mining industry are expected to boost revenues. Although public debt has increased during the crisis, as a percentage of GDP, it remains well below the average for emerging and African countries and is expected to remain at around 23% of GDP, of which about 35% is domestic debt.

Despite their decline, foreign exchange reserves remain at a comfortable level, covering over 6 months of imports. In 2023, the current account should be in surplus. Increased revenues from diamonds (about 90% of exports), linked to their high price and the shift in demand from Russia, as well as from copper sales and tourism revenues, will offset the still high import bill for food, electricity and fuel, as well as payments for mining services and repatriation of profits by foreign operators.

Political stability, but inequalities are a challenge

The Boswana Democratic Party (BDP), which has been in power since the country's independence in 1966, won 67% of the vote and 38 of the 57 seats in the October 2019 parliamentary elections. The incumbent president, Mokgweetsi Masisi, who hails from the BDP, was therefore confirmed in office by a vote of the National Assembly. Despite some loss of popularity for his handling of the pandemic, and a growing rivalry with his predecessor, Ian Khama, Masisi is expected to remain in power at least until the 2024 elections. Having governed through several decades of growth and development, the BDP enjoys significant political capital. However, high levels of unemployment (26% in early 2022) and inequality (10th highest Gini coefficient in the world) could challenge social stability. As the economy is food and oil importing, the volatility and high prices of these products due to the war in Ukraine, could further increase inequality and poverty. The country has been an example of good governance in Africa, with peaceful and transparent elections. However, certain trends favoured by the continuity of power granted to the BDP since 1966 seem to indicate an institutional decline, such as the excessive influence of the executive on the judiciary (WEO Global Competitiveness Report), a questionable budgetary transparency (Ibrahim Index of African Governance) or media under the influence of the government (via the Media Practitioners Act of 2008). However, the judicial environment remains generally business-friendly, with strong property rights and investor protection, special economic zones and relatively light administrative formalities.

Last updated: September 2022