increased capital spending and implemen- BOTSWANA tation of the Economic Stimulus Program. Recent developments Nonetheless, despite higher capital spend- ing and lower SACU revenues in FY16, Botswana’s GDP grew by 4.5 percent in the budget deficit has narrowed to 0.3 2016, strongly rebounding from a contrac- percent of GDP compared to 4.8 percent in Table 1 2016 tion of 1.7 percent in 2015. Growth was FY15. The reduction of the deficit reflects P o pulatio n, millio n 2.3 driven by upswing in mineral exports and higher government revenues from miner- GDP , current US$ billio n 15.6 services sector, outpacing earlier projec- als, and this has reduced the need to with- GDP per capita, current US$ 6763 tions for 2016. draw funds from accumulated fiscal sav- Internatio nal po verty rate ($ 1.9) a 18.2 The rebound in the global demand for ings (i.e. the Pula fund). Since FY15 when Lo wer middle-inco me po verty rate ($ 3.2) a 37.1 diamonds resulted in a sharp increase in tax reforms were implemented, the share a 57.5 diamond exports and clearance of previ- of mineral revenues and SACU receipts Upper middle-inco me po verty rate ($ 5.5) a ously accumulated diamond inventories. has declined in total revenues that is Gini co efficient 60.5 b The increase in the global demand for attributable to higher reliance on direct Life expectancy at birth, years 64.4 diamonds resulted in gradual recovery of and indirect non-mineral taxes. Source: WDI, M acro Poverty Outlook, and official data. the mining activity related to diamond The sharp increase of diamond exports in Notes: (a) M ost recent value (2009), 2011 PPPs. extraction, although this was fully offset 2016, triggered strong export growth that (b) M ost recent WDI value (2014) by the closure of the BCL copper and resulted in a further improvement in the nickel mines in the last quarter of 2016. current account surplus. Inflation in 2016 Overall, the mining production shrank eased to 2.8 percent, and is attributable to by 3.7 percent in 2016 compared to 19.6 declining import prices especially oil. percent in 2015. Economic growth has been pro-poor, Botswana’s economic growth recovered Services sector continued to be the fastest leading to significant and rapid poverty growing segment of the economy, contrib- reduction. Between 2002/03 and 2009/10, strongly in 2016, fueled by mineral ex- uting significantly to overall GDP growth. the share of the population living on less ports and services sector. Further gains Strongest gains within the tertiary sector than $1.90 a day at the 2011 PPP exchange are expected for the medium-term, with a were noticed in the wholesale and retail rate, declined steadily from 29.8 percent real GDP growth of up to 4.8 percent by trade and transport and communication to 18.2 percent (figure 2). This reflects a 2019. Growth will be driven by the min- areas. Furthermore, GDP growth was sup- combination of equitable growth, demo- ported by the intensified construction graphic changes (e.g. decreasing fertility ing sector activity as global demand in- activity and the water and electricity sec- rates and dependency ratios), increased creases, construction activity supported tors over the course of 2016 that recuperat- credit, and expansion of social assistance from public investments, and the services ed from last year’s supply disruptions. schemes (especially direct transfers to sectors. Over the period, poverty is pro- Agricultural sector continued to have a rural households), and employment ex- limiting role to GDP growth, in part due pansion (especially of agricultural em- jected to decline by 0.7 percentage point to the lasting droughts in the region. ployment in rural areas by 5.6 percent). annually to reach 10.6 percent of the pop- An additional marginal boost to eco- Progress in rural poverty reduction has ulation by 2019. nomic recovery has been provided from been rapid, as it was almost halved (from fiscal policy, with policy geared toward 45.2 percent in 2002/03 to 23.7 percent in FIGURE 1 Botswana / Share of SACU and mineral revenues FIGURE 2 Botswana / Actual and projected poverty rates in total public revenue and GDP per capita Percent Poverty rate (%) GDP per capita (constant LCU) 100 80 50000 SACU revenues 90 70 Mineral revenues 80 40000 60 70 50 30000 60 40 50 20000 30 40 20 30 10000 10 20 0 0 10 2002 2004 2006 2008 2010 2012 2014 2016 2018 0 International poverty rate Lower middle-income pov. rate 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Upper middle-income pov. rate GDP pc Source: Bank of Botswana financial statistics. Source: World Bank. Notes: see table 2. MPO 204 Oct 17 2009/10). However, inequality in Botswa- Additional support to the GDP growth Over the medium term, the country is na remains high with a Gini coefficient of will be provided from the intensified expected to reduce poverty by 0.7 percent- 60.5 in 2009/10, down slightly from 64.7 public capital spending that will foster age point annually, to 10.6 percent by in 2002/03. In response to the real GDP construction activity. Construction activi- 2019. Achieving further poverty reduction contraction of 2015 (table 2), the share of ty will also be supported with the expan- will be challenging with the pace of pro- the population living in poverty is esti- sion of the new power supply capacities gress constrained by limited private sector mated to have increased by almost 1 per- which will reduce supply shortages in job creation, particularly in urban areas, centage point from the previous year to the country. and reliance on low productivity agricul- 13.3 percent. Gradual pickup in economic Tertiary sector will remain the fastest tural jobs in rural areas, combined with growth in 2016 helped to reduce the pov- growing segment in the economy and will reduced credit growth and high levels of erty headcounts to 12.7 percent. Statistics make a significant contribution to overall household indebtedness. Botswana recently finished collecting value added in the country through in- new household consumption data based creased demand for services that are on the Botswana Multi-Topic Survey 2015/16 and the poverty estimates are closely related to mining activity and to the recovery of domestic demand. Risks and challenges expected this FY. At the same time, stronger domestic de- mand will place upward pressure on im- Botswana, as heavily dependent on com- ports of goods and services, and is ex- modity exports and public sector activity, Outlook pected to lead to a gradual reduction of the current account surplus. Stronger do- will remain exposed to external shocks. Therefore, a key risk facing the economic mestic demand and rising oil prices will outlook arises from potentially slower Economic activity is expected to reach 4.5 generate price pressures which are likely than expected recovery of global demand percent in 2017, up to 4.8 by 2019. The to lead to an acceleration of inflation to for commodities including diamonds. For economic growth will be driven by the around 4 percent by 2019. example, a slowdown in major economies, mining activity, construction, services Fiscal spending will continue to advance would further constrain diamond and sector and intensified public investments. at today’s more-rapid pace, with priority other commodity production, with spillo- In the next few years mining activity is for areas identified in the recently an- ver effects across government revenues expected to return close to its pre-crisis nounced National Development Plan 11 and exports. In the medium-term, struc- level in line with the expectations for a (NDP11) which are: tackling poverty, in- tural reforms remain critical for managing gradual recovery of the global demand for clusive growth, and job creation. Budget volatility and sustainability risks such as diamonds and the possible restructuring deficits are anticipated to narrow from FY reforms in the water and energy sectors, and startup of parts of the BCL copper 2018/19 forward because of higher mineral as well as policies that address labor mar- and nickel mines. revenues, despite lower SACU receipts. ket distortions. 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 -1.7 4.3 4.5 4.7 4.8 Private Consumption 0.8 3.9 2.2 2.6 3.0 3.5 Government Consumption 10.8 2.5 0.5 1.9 2.2 2.3 Gross Fixed Capital Investment 1.5 8.8 3.6 4.3 4.3 4.4 Exports, Goods and Services 7.8 -17.1 13.9 6.1 6.5 6.8 Imports, Goods and Services -0.5 0.4 -6.2 4.0 4.6 5.4 Real GDP growth, at constant factor prices 4.1 -2.0 4.8 4.5 4.7 4.8 Agriculture -0.4 0.3 -1.0 1.5 1.8 2.0 Industry -0.2 -8.9 1.3 1.1 2.2 2.5 Services 6.5 1.3 6.6 6.0 5.8 5.8 Inflation (Consumer Price Index) 4.4 3.1 2.8 3.6 3.9 4.1 Current Account Balance (% of GDP) 15.2 8.3 11.7 9.7 8.4 7.5 Fiscal Balance (% of GDP)a 3.7 -4.8 -0.3 -1.6 -1.0 -0.6 Debt (% of GDP) 17.5 17.0 15.9 17.3 18.0 18.3 a,b Primary Balance (% of GDP) 4.3 -4.2 0.3 -1.0 -0.3 0.2 International poverty rate ($1.9 in 2011 PPP) c,d 12.3 13.3 12.7 11.9 11.1 10.6 Lower middle-income poverty rate ($3.2 in 2011 PPP) c,d 28.6 30.2 29.0 27.9 26.7 25.5 Upper middle-income poverty rate ($5.5 in 2011 PPP) c,d 50.2 51.1 50.4 49.7 48.8 47.7 So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty and Equity Glo bal P ractice. No tes: f = fo recast. (a) Fiscal year starts fro m A pril 1st. (b) No n-mineral primary balance. (c) Calculatio ns based o n 2009-CWIS. No wcast: 201 4 - 2016. Fo recast are fro m 2017 to 2019. (d)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. MPO 205 Oct 17