Botswana Economic Outlook
- Botswana’s GDP growth slowed down in 2014, reflecting modest overall growth in non-mining activities.
- The fiscal position is projected to remain strong on account of higher mineral revenue and the government’s commitment to fiscal discipline.
- Botswana’s growth prospects look promising, but downside risks emanating from a decline in global mineral prices, particularly for diamonds, remain elevated.
Botswana’s economy has recovered from the global economic crisis. Real GDP registered robust growth in 2013, underpinned by buoyant activity in the mining sector, particularly diamond production, in spite of bottlenecks in the power and water sectors. According to our estimates, the economy, however, slowed down in 2014, reflecting modest overall growth in nonmining activities, mainly the water and electricity sector which contracted sharply.
Botswana’s growth prospects look broadly favourable. Real GDP growth is projected to moderate slightly during 2015-16. Growth will primarily be driven by the non-mining sectors including trade and tourism, as well as financial and government services. Medium-term growth prospects also depend crucially on the expansion in diamond cutting and polishing activities and the commissioning of a steel manufacturing plant and a horticultural processing plant in 2015. However, the uncertain external environment, particularly the potential slowdown in emerging markets, exposes Botswana’s narrow export base to significant downside risks.
After a fiscal deficit in the aftermath of the global economic crisis, a budget surplus is projected in the 2015/16 financial year, for the fourth consecutive year. This positive fiscal outturn is the result of higher mineral revenue and efforts by the government to rebalance some spending priorities, including reigning in unproductive elements of current expenditure.
Inflationary pressures continued to ease in 2014. On an annual basis, inflation was much lower in 2014 than in the previous year. Key factors that have helped to drive down inflation include the general slowdown in the costs of food and transport. Inflation is expected to remain within the Bank of Botswana’s objective range of 3-6% in the medium term.
Elections are held every five years in Botswana. In the last elections held in October 2014, Botswana Democratic Party President Ian Khama was re-elected the country’s president for a second and last five-year term after his party maintained its majority in Parliament winning 37 out of the 57 elected seats. The prudent macroeconomic management and political stability are expected to continue during his tenure.