including the implementation of an Eco- BOTSWANA nomic Stimulus Program. Accordingly, Recent developments despite higher government spending and lower SACU revenues in FY 2016/17, the Botswana’s economy recovered gradually budget deficit is expected to narrow to 0.7 over the course of 2016 with estimated percent of GDP compared to 1.3 percent Table 1 2016 GDP growth of 2.9 percent, compared to a in the previous fiscal year. The reduction Population, million 2.3 contraction of 1.6 percent in the year pre- of the deficit reflects higher government GDP, c urrent US$ billion 15.3 ceding. Recovery was driven mainly by a revenues from mining activity, and this GDP per c apita, c urrent US$ 6638 rebound in mining activity, as a result of has reduced the need to withdraw funds Poverty rate ($1.9/day 2011PPP terms) a 18.2 an increase in global demand and prices from accumulated fiscal savings (i.e. the Poverty rate ($3.1/day 2011PPP terms) a 35.7 for diamonds in the second half of 2016. Pula fund). The gradual restoration of mining produc- Inflation in 2016 eased to 2.8 percent, Gini Coeffic ient a 60.5 b tion carried significant spill-over effects to which is below the Bank of Botswana’s Sc hool enrollment, primary (% gross) 108.6 other industrial sectors, such as the dia- medium term objective band of between 3 b Life Expec tanc y at birth, years 64.4 mond processing industry and segments and 6 percent. Lower inflation is attributa- Sources: World Bank WDI and M acro Poverty Outlook. of the services sector (i.e. transport and ble to still low commodity prices and slug- Notes: communications and trade) that now gish domestic demand pressures as a con- (a) M ost recent value (2009) (b) M ost recent WDI value (2014) show signs of recovery from the slow- sequence of the 2015 economic slow- down of 2015. Manufacturing and con- down, since when the output gap entered struction sectors were further supported negative territory. by strong gains in the water and electricity Economic growth has been pro-poor, sectors, recouping from significant slow- leading to significant and rapid poverty Botswana’s economy recovered moderate- down in 2015 as a result of various supply reduction. Between 2002/03 and 2009/10, ly in 2016. Further gains are expected for disruptions. the share of the population living on less The service sector continued to be the than $1.90 a day at the 2011 PPP exchange the medium-term, with real GDP growth fastest growing segment of the economy, rate, declined steadily from 29.8 percent of more-than 4 percent through 2019. contributing significantly to overall GDP to 18.2 percent (figure 2). This reflects a Growth will be driven mostly by mining growth. Exports of goods and services combination of equitable growth, demo- sector activity as commodity prices in- have also benefitted from the rebound in graphic changes (e.g. decreasing fertility crease, followed by manufacturing, con- mining activity, where export growth rates and dependency ratios), increased has recovered more sharply than that of credit, and expansion of social assistance struction and the services sectors. The imports. This resulted in a positive con- schemes (especially direct transfers to economy remains vulnerable to external tribution of net trade to GDP and a fur- rural households), and employment ex- shocks, and thus structural reforms re- ther improvement in the current account pansion (especially of agricultural em- main critical to manage volatility. In the surplus. ployment in rural areas (by some 5.6 per- An additional boost to economic recovery cent)). Progress in rural poverty reduction medium term, poverty can be expected to has been provided from fiscal impetus, has been rapid, as it was almost halved decline by 0.5 percentage point annually with policy geared toward increased (from 45.2 percent in 2002/03 to 23.7 per- to 11 percent by 2019. counter-cyclical government spending, cent in 2009/10). However, inequality in FIGURE 1 Botswana / Share of SACU and mineral to total FIGURE 2 Botswana / Poverty and inequality public revenues Percent Percent 100 70 SACU revenues National Rural Urban 90 60 Mineral revenues 80 50 70 60 40 50 30 40 20 30 10 20 10 0 2002/03 2009/10 2002/03 2009/10 0 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Poverty rate % ($1.90 PPP 2011) Gini coefficient Source: Bank of Botswana financial statistics. Sources: World Bank calculations based on HIES (2003), CWIS (2010) and World Bank staff estimates based on WDI data. MPO 1 Apr 17 Botswana remains high with a Gini coeffi- Concurrent with improvement in indus- cient of 60.5 in 2009/10, down slightly from 64.7 in 2002/03. In response to the trial and fiscal prospects for the country, additional support is expected to Risks and challenges real GDP contraction of 2015 (table 2), the emerge from investment activity and share of the population living in poverty private consumption. At the same time, Botswana, as heavily dependent on com- is estimated to have increased by almost 1 stronger domestic demand will place modity exports and public sector activi- percentage point from the previous year upward pressure on imports of goods ty, will remain exposed to external to 13.2 percent. Gradual pickup in eco- and services, and is expected to lead to a shocks. Therefore, a key risk facing the nomic growth in 2016 helped to reduce gradual reduction of the current account economic outlook arises from potentially the poverty headcounts to 13 percent. surplus- while also generating price slower -than -expected recovery of global pressures which are likely to lead to an demand for commodities including dia- acceleration of inflation to above 4 per- monds. For example, a slowdown in Outlook cent by 2019. Fiscal spending will continue to advance major economies, notably in China, would further constrain diamond and at today’s more-rapid pace, with priority other commodity production, with spill- Economic recovery is expected to inten- for areas identified in the recently an- over effects across government revenues sify to 4 percent in 2017, reaching 4.3 nounced National Development Plan 11 and the retail and services sectors. In percent by 2019, driven in the main by (NDP11). Budget deficits are anticipated addition, continued delays in upgrading the industrial sector (mining, construc- to narrow from FY 2018/19 forward as a electricity and water infrastructure will tion and manufacturing). In the next result of higher revenues from the mining dampen non-mining activity, especially few years mining activity is expected to sector and stronger SACU inflows. in the manufacturing sector. return close to its pre -crisis level as a Over the medium term, the country is In the medium-term structural reforms result of expectations for a gradual re- expected to reduce poverty by 0.5 per- remain critical in order to manage vola- covery in the international environment centage point annually, to 11 percent by tility and sustainability risks. These in- and global demand for diamonds. The 2019 (figure 2). Achieving further pov- clude reforms in the water and energy tertiary sector is also anticipated to erty reduction will be challenging with sectors, as well as policies that address make a significant contribution to over- the pace of progress constrained by lim- labor market distortions to spur private all value added in the country, through ited private sector job creation, particu- sector job creation. Investment is needed increased demand -- not only for services larly in urban areas, and reliance on low in infrastructure and human capital, that are closely related to mining activi- productivity agricultural jobs in rural while additional efforts to improve the ty --but also for services related to re- areas, combined with reduced credit business environment and to relook at covery of domestic demand and the growth and high levels of household immigration policies could help to en- tourism sector. indebtedness. courage competition. TABLE 2 Botswana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2014 2015 2016 e 2017 f 2018 f 2019 f Real GDP growth, at constant market prices 4.1 -1.6 2.9 4.0 4.2 4.3 Private Consumption 0.8 3.9 2.0 2.5 3.0 3.3 Government Consumption 10.8 2.5 2.8 3.1 3.0 2.9 Gross Fixed Capital Investment 1.5 9.1 2.0 3.8 3.6 3.2 Exports, Goods and Services 7.8 -17.1 6.0 6.3 6.5 6.8 Imports, Goods and Services -0.5 0.4 4.3 4.4 4.6 4.7 Real GDP growth, at constant factor prices 4.1 -2.0 2.9 4.0 4.2 4.3 Agriculture -0.4 0.3 -1.0 1.5 2.5 2.5 Industry -0.2 -8.9 3.0 3.5 3.9 4.2 Services 6.5 1.3 3.0 4.3 4.3 4.4 Inflation (Consumer Price Index) 4.4 3.1 2.8 3.7 4.0 4.3 Current Account Balance (% of GDP) 15.2 7.7 9.8 9.6 8.2 7.9 Fiscal Balance (% of GDP)d 3.3 -1.3 -0.7 -1.4 -0.8 -0.4 Debt (% of GDP) 17.4 17.5 18.0 18.3 18.6 18.7 Primary Balance (% of GDP) d,e 3.9 -0.7 -0.1 -0.7 -0.1 0.3 Poverty rate ($1.9/day PPP terms) a,b,c 12.3 13.2 13.0 12.4 11.7 11.0 Poverty rate ($3.1/day PPP terms) a,b,c 26.9 28.5 28.0 27.0 26.1 25.3 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) A ctual data: 2009. No wcast: 201 0 - 2016. Fo recast are fro m 2017 to 2019 (d) Fiscal year starts fro m A pril 1st. (e) No n-mineral primary balance. MPO 2 Apr 17