You are here
Botswana Economic Outlook
Real GDP growth was an estimated 4.2% in 2018, up from 2.4% in 2017, boosted largely by the recovery in mining and broad-based expansion of nonmining activities. The growth in mineral production was driven mainly by favorable global trading conditions and the commencement of operations at the Damtshaa Mine in January 2018. The nonmining expansion was driven largely by continuing accommodative fiscal and monetary policies, as well as recovery in downstream diamond industries. Though subdued, agricultural growth was sustained in 2018, buoyed by good weather conditions. Manufacturing also picked up slightly, benefiting from stable water and electricity supply.
The fiscal deficit in 2018 was an estimated 1.0% of GDP, due to higher spending and a decline in revenues from the volatile Southern African Customs Union. The government is financing the deficit by issuing additional securities under the existing government note program. Public debt fell to 20.4% of GDP (12.7% external and 7.7% domestic) in 2018 from 21.1% in 2017. The overall debt remains sustainable and well below the country’s statutory ceiling of 40% of GDP.
Monetary policy aims mainly at price stability and remains accommodative, taking advantage of low inflation. Inflation was an estimated 3.4% in 2018, up marginally from 3.3% in 2017 but within the Bank of Botswana’s medium-term target of 3%–6%. The real effective exchange rate has remained stable and competitive because of the crawling peg exchange rate regime. In September 2018, gross reserves amounted to about $7.1 billion, or 17 months of imports.
Tailwinds and headwinds
Growth prospects for the medium term are favorable, with real GDP growth projected at 3.8% in 2019 and 4.1% in 2020. The outlook for the mining sector is positive due to an anticipated increase in demand for Botswana’s rough diamonds (diamonds account for three-fourths of Botswana’s total exports). The nonmining sectors are expected to pick up further, driven by structural reforms, including an amended immigration law that ensures expeditious processing of work and residence permits and a move that provides utilities at reasonable prices to encourage domestic manufacturers. Construction is expected to continue benefiting from the ongoing fiscal stimulus.
But growth prospects are clouded by high unemployment (particularly youth unemployment) and income inequality. Downside risks associated with weak global demand for diamond exports remain elevated in light of the threat to global growth from escalating trade tensions. Other notable risks include persistent drought affecting livestock and agricultural production and lower Southern African Customs Union revenues if South Africa’s economic conditions remain unfavorable.
The risks underscore the need to accelerate structural reforms to promote economic diversification and higher productivity and thus reduce vulnerability to external shock. With promising medium-term growth prospects and ample fiscal space, policies could prioritize the economic transformation needed to deliver more inclusive, resilient, and job-creating growth. Overcoming the skills shortage, infrastructure bottlenecks, and high cost of doing business could expedite integration into regional and global value chains and thus economic diversification.