to counter-cyclical fiscal stimulus includ- BOTSWANA ing the start of the Economic Stimulus Recent developments Program. The Government has substantial fiscal savings from diamond revenues Weak global demand for rough diamonds (i.e., the Pula fund), and international re- and relatively low prices of metals caused serves stand at about 12 months of im- Table 1 2015 real GDP to contract by 0.3 percent in ports, which provides Botswana ample Population, million 2.3 2015, down from a gain of 3.2 percent in space to gradually adjust expenditures to GDP, c urrent US$ billion 13.0 2014. Mining plummeted by 21 percent for the SACU shock in the long run, and to GDP per c apita, c urrent US$ 5742 the year. Continuing electricity and water provide counter-cyclical stimulus in the Poverty rate ($1.9/day 2011PPP terms) a 18.2 supply disruptions have impacted manu- near term. Weaker performance across the a 35.7 facturing, whereas the regional drought mining sector will tend to narrow the cur- Poverty rate ($3.1/day 2011PPP terms) adversely effected agriculture. In contrast, rent account surplus. In 2014, Botswana Gini Coeffic ient a 60.5 services and retail led the non-mining achieved a substantial surplus of 15.6 per- b Sc hool enrollment, primary (% gross) 108.1 sectors to overall growth of above 3 per- cent of GDP. But external factors noted b Life Expec tanc y at birth, years 64.2 cent. The first half of 2016 showed encour- above adversely affected exports in 2015, Sources: World Bank WDI and M acro Poverty Outlook. aging signs of improved economic condi- and the current account surplus narrowed Notes: tions. Most importantly, rough diamond to 7.2 percent of GDP. (a) M ost recent value (2009) (b) M ost recent WDI value (2014) sales started recovering and helped deliv- Economic growth has been pro-poor, er a welcome boost to exports and govern- leading to significant and rapid poverty ment revenues. reduction. Between 2002/03 and 2009/10, The fiscal position moved sharply into the share of the population living on less deficit in FY2015/16 after three years of than $1.90 a day at 2011 PPP exchange Improvement from the 2015 downturn in consecutive surpluses. The fiscal balance rate, declined steadily from 29.8 percent Botswana’s growth is expected over the swung from surplus of 3.7 percent of GDP to 18.2 percent (figure 2) thanks to a com- in FY2014/15 (the fiscal year starts April 1) bination of equitable growth, demo- medium term. Real GDP should advance to an estimated deficit of 6.3 percent of graphic changes (e.g. decreasing fertility by 4 percent by 2017, as commodity pric- GDP in FY2015/16, largely due to much rates and dependency ratios), increased es improve and fiscal buffers are used for lower than expected revenue. Govern- credit, and expansion of social assistance counter-cyclical stimulus. Structural ment relies mainly on two volatile sources schemes (especially direct transfers to of revenue inflows, mineral revenues rural households), and employment ex- reforms remain critical to manage volatil- (which accounts for almost 40 percent of pansion (especially of agricultural em- ity and sustainability risks, including total revenue) and SACU customs reve- ployment in rural areas by 5.6 percent). reforms in the water and energy sectors nues (over one-quarter of total revenue). Progress in rural poverty reduction has and addressing labor market distortions to Both have declined, the former due to been especially rapid, as it was almost spur private sector job creation. With weak global demand and the latter from halved (from 45.2 percent in 2002/03 to decline in South Africa’s economic 23.7 percent in 2009/10). However, ine- recovery to low per capita growth, pov- growth. Total revenues dropped by 7.8 quality in Botswana remains high with a erty-reduction gains can be expected to be percent of GDP in 2015, while expendi- Gini coefficient of 60.5 in 2009/10, slightly only modest. tures increased by 2.2 percent of GDP due down from 64.7 in 2002/03. Given the FIGURE 1 Botswana / Commodity dependence in SACU FIGURE 2 Botswana / Poverty and inequality countries, 2005-14 Percent Percent 90 70 % exports National Rural Urban 80 60 % GDP 70 50 60 40 50 30 40 20 30 20 10 10 0 2002/03 2009/10 2002/03 2009/10 0 Botswana South Africa Namibia Lesotho Swaziland Poverty rate % ($1.90 PPP 2011) Gini coefficient Sources: World Bank, World Development Indicators. Sources: World Bank calculations based on data from Statistics Botswana (2014) comprising HIES (2002) and CWIS (2009). MPO 198 Oct 16 recent real GDP contraction, poverty is expected to keep the fiscal balance in the economies, particularly in China, would estimated to have remained stagnant red for the next few years. The current further constrain diamond-and other com- between 2013 and 2015, at 13.2 percent account surplus should continue to nar- modity production, with follow-on im- and 13.4 percent of the population re- row in 2016 and 2017 on continued soft- pacts across Government revenues, and spectively. ness in the mining sector before gradual the retail and service sectors. Slowing rev- improvement. enue growth over coming years, partly The country is expected to make modest reflecting declining SACU receipts, re- Outlook progress toward poverty reduction over the medium-term. Poverty is projected to quires careful management of expenditure pressures, especially in relation to the decline from 13.2 percent in 2016 to 11.9 wage bill. Continued delays in upgrading The economy is expected to rebound to percent in 2018. Achieving further poverty electricity and water infrastructure will real growth near 3 percent this year and 4 reduction will be challenging with the dampen non-mining activity, especially in percent by 2017, driven mainly by im- pace of progress constrained by limited the manufacturing sector. proved diamond sector conditions and private sector job creation, particularly in Over the medium-term, diversification of continued fiscal stimulus that will propel urban areas, and reliance on low produc- the economy and exports away from min- non-mining activity. Lower fuel and com- tivity agricultural jobs in rural areas, com- ing is a priority. Structural reforms re- modity prices, slower credit growth and bined with reduced credit growth and main critical in the medium term to man- weakening economic activity will keep high levels of household indebtedness. age volatility and sustainability risks, CPI inflation at the lower end of the Cen- including reforms in the water and ener- tral Bank’s band of 3-6 percent. The fall in gy sectors and addressing labor market mining revenue is expected to gradually recover as developed economies stabilize. Risks and challenges distortions to spur private sector job crea- tion. Investments are needed in infra- However, SACU transfers are expected to structure and human capital, as well as remain soft mainly due to a weak near- As long as growth is heavily dependent establishment of trade, business environ- term economic outlook for South African on commodity exports and public sector ment, and immigration policies that en- growth. The combination of strong ex- activity, Botswana will remain exposed courage competition. penditure growth and lower revenue is to external shocks. Slowdown in major TABLE 2 Botswana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2013 2014 2015 2016 f 2017 f 2018 f Real GDP growth, at constant market prices 9.9 3.2 -0.3 3.1 4.0 4.3 Private Consumption 10.4 4.3 2.6 2.6 2.7 3.0 Government Consumption 14.2 2.2 8.7 8.9 9.5 12.5 Gross Fixed Capital Investment -6.8 15.3 2.6 5.4 2.8 0.3 Exports, Goods and Services 29.8 12.1 -16.9 -6.5 2.5 6.3 Imports, Goods and Services 11.6 6.9 1.5 -2.0 2.8 5.3 Real GDP growth, at constant factor prices 10.1 3.0 -0.6 3.4 4.0 4.3 Agriculture 1.3 -0.3 0.3 0.9 1.1 1.2 Industry 16.1 -0.5 -10.6 0.5 1.3 2.5 Services 7.4 5.0 4.6 4.8 5.2 5.1 Inflation (Consumer Price Index) 5.9 4.4 3.1 3.2 3.5 4.0 Current Account Balance (% of GDP) 9.4 15.6 7.3 4.9 2.9 4.6 Fiscal Balance (% of GDP) 5.6 3.7 -6.3 -4.3 -4.0 -2.4 Debt (% of GDP) 17.8 17.3 17.2 16.9 15.3 13.7 d Primary Balance (% of GDP) 6.2 4.3 -5.6 -3.7 -3.3 -1.8 Poverty rate ($1.9/day PPP terms) a,b,c 13.2 13.0 13.4 13.2 12.5 11.9 Poverty rate ($3.1/day PPP terms) a,b,c 28.5 27.9 28.7 28.4 27.4 26.5 So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice. No tes: e = estimate, f = fo recast. (a) Calculatio ns based o n 2009-CWIS. (b) P ro jectio n using neutral distributio n (2009) with pass-thro ugh = 0.87 based o n GDP per capita in co nstant LCU. (c) P ro jectio ns are fro m 2013 to 201 8. (d) No n-mineral primary balance. MPO 199 Oct 16