Structural Reforms Key to Growth

The International Monetary Fund (IMF) has concluded consultations with Botswana, commending the government for implementing prudent policies that have shielded the economy and kept it stable despite a weakening diamond market.

The Article IV consultations that concluded last Thursday (September 13) are a prerequisite of the IMF’s Articles of Agreement, which involve discussions between IMF economists, governments and central bank officials.

The IMF assessment team – led by Enrique Gelbard – completed its visit to Gaborone last week where it engaged in talks with Bank of Botswana governor Moses Dinekere Pelaelo and finance and economic development minister Kenneth Matambo. While Botswana has not requested any IMF loans, it has benefitted from the technical assistance offered by the IMF in the areas of tax reforms, financial management, and fiscal and monetary policy.

The latest review comes on the back of a mixed 2017 for Botswana, which saw real GDP growth drop to 2.4% despite higher diamond production.

Botswana’s finance ministry last month unveiled a long-term plan to further boost the economy and avoid the risk of unsustainable public spending in rough times.

The six-year strategy, which highlights public financial management reforms as well as reforms in automation and data collection, marks the country’s latest efforts to diversify the economy.

The IMF said in a statement that while economic conditions for 2018/9 are expected to improve, buoyed by the diamond market and fiscal incentives, the country’s medium-term economic outlook will depend heavily on the success of structural reforms.

According to Gelbard, the structural reforms include the need to diversify Botswana’s economy: “In Botswana, beef and tourism are sectors that have significant potential and there are measures the government can take to promote these sectors such as removing an export monopoly on beef exports and improving the transport infrastructure.”

A call to reform the beef sector has long been a contentious issue as the Botswana Meat Commission (BMC) is protected from export competition. The BMC Act grants the body a monopoly on the export of beef and prohibits the export of live cattle. Consequently, in the absence of competition from local butcheries and abattoirs, the BMC has solely benefitted from the European Union market.

As the economy recovers from low growth in 2017, the central bank has taken on an accommodative monetary policy stance consistent with the output gap and subdued inflation. “Over time we do expect the monetary conditions will improve as well as the monetary base, which will prompt a change in the monetary stance,” says Gelbard.

Botswana has also embarked on reforms aimed at improving the ease of doing business, adopting electronic filing and payment of taxes, and establishing its One Stop Centre at the Botswana Investment and Trade Centre.

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