started an ambitious Economic Stimulus BOTSWANA Program. This Program emphasizes devel- Recent developments opment spending on building construc- tion, roads, tourism development, agricul- Weakening global demand for rough dia- ture and manufacturing. The Government monds, combined with falling prices of has substantial fiscal savings from dia- Table 1 2015 metals have led to a deterioration in the mond revenues (i.e., the Pula fund), and Population, million 2.3 near term growth outlook. Real growth is international reserves stand at about 11 GDP, c urrent US$ billion 13.8 estimated to have contracted slightly in months of imports, which provides Bot- GDP per c apita, c urrent US$ 6087 2015 by 0.3 percent, down from a gain of swana ample space to gradually adjust Poverty rate ($1.9/day 2011PPP terms) a 18.2 3.2 percent in 2014 on the back of poor expenditures to the SACU shock in the a outcomes in the diamond sector. The long run, and to provide counter-cyclical Poverty rate ($3.1/day 2011PPP terms) 35.7 slowdown in China and falling global stimulus in the near term. Gini Coeffic ient a 60.5 prices for commodities caused the mining Weak performance across the mining sec- b Sc hool enrollment, primary (% gross) 108.2 sector to contract sharply in 2015 Q3 and tor will narrow the current account sur- b Life Expec tanc y at birth, years 47.0 Q4; mining GDP contracted by 21 percent plus. In 2014, Botswana achieved a current Sources: World Bank WDI and M acro Poverty Outlook. for the year. Continuing electricity and account surplus of 15.7 percent of GDP. Notes: water supply disruptions have impacted External factors mentioned above adverse- (a) M ost recent value (2009) (b) M ost recent WDI value (2013) manufacturing, whereas the negative ly affected exports in 2015, and the current effects of a regional drought adversely account surplus narrowed to 9.3 percent effected agriculture. In contrast, service of GDP. Foreign reserves remain strong at and retail sectors led the non-mining sec- USD 7.5 billion at end- 2015, or 65 percent Weakening global demand for diamonds tors to overall growth of above 3 percent. of GDP. in 2015 led growth in Botswana to stall, The fiscal position moved into deficit in Economic growth has been pro-poor, lead- pressured the fiscal position to deficit and 2015/16 after three years of consecutive ing to very significant and rapid poverty surpluses. The fiscal balance swung from reduction. Between 2002/03 and 2009/10, narrowed the current account surplus. a surplus of 3.8 percent of GDP in 2014/15 the share of the population living on less GDP should rebound in 2017 as commod- (the fiscal year starts April 1) to an esti- than $1.90 a day at 2011 international pric- ity prices improve and counter-cyclical mated deficit of 2.9 percent of GDP in es declined steadily from 29.8 percent to stimulus is undertaken. Medium-term 2015/16, as revenues fell and spending 18.2 percent (figure 2) thanks to a combi- increased. On the revenue side, Govern- nation of equitable growth, demographic structural reforms are critical to manage ment relies mainly on two volatile sources changes (e.g. decreasing fertility rates and volatility and sustainability risks, notably of inflows, mineral revenues (which ac- dependency ratios), increased credit, and reforms in the water and energy sectors; counts for almost 40 percent of total reve- expansion of social assistance schemes while labor market distortions require nue) and SACU customs revenues (27 (especially direct transfers to rural house- addressing to spur private sector job crea- percent of total revenue). Both have de- holds), and employment expansion clined, the former from weak global de- (especially of agricultural employment in tion. Recovery to low per-capita growth mand and the latter from the decline in rural areas by 5.6 percent). Progress in in the medium-term suggests that gains South Africa’s economic growth. On the rural poverty reduction has been especial- in poverty reduction are likely to be modest. expenditure side, in 2015 Government ly rapid, as it was almost halved (from FIGURE 1 Botswana / Commodity dependence in SACU FIGURE 2 Botswana / Poverty and inequality countries Percent Percent 100 70 % exports National Rural Urban 90 60 % GDP 80 50 70 60 40 50 30 40 20 30 20 10 10 0 0 2002/03 2009/10 2002/03 2009/10 Botswana South Africa Namibia Lesotho Swaziland Poverty rate % ($1.90 PPP 2011) Gini coefficient Sources: World Bank, World Development Indicators. Sources: World Bank calculations based on data from Statistics Botswana (2014) comprising HIES (2003) and CWIS (2010). MPO 200 Apr 16 45.2 percent in 2002/03 to 23.7 percent in fiscal balance further into the red in 2016, major economies, particularly China, 2009/10). However, inequality in Botswa- to a deficit of 3.9 percent of GDP, before a would further constrain diamond and na remains high with the Gini coefficient gradual return to balance by 2019 with other commodity production, with follow - of 60.5 in 2009/10, down moderately from deficits of 3.0 percent of GDP in 2017 and on impacts across Government revenues, 64.7 in 2002/03. 1.5 percent in 2018). The current account and the retail and service sectors. Slowing will continue narrowing further in 2016 on revenue growth over coming years, partly continued weakness in the mining sector reflecting declining SACU receipts, re- Outlook before gradual improvement. The country is expected to make modest quires careful management of expenditure pressures, especially in relation to the progress toward poverty reduction over wage bill. Continued delays in upgrading The economy is expected to rebound to the medium-term. Poverty is estimated to electricity and water infrastructure will 4.4 percent real growth by 2018, driven decline from 13.2 percent in 2013 to 11.6 dampen non-mining activity, especially in mainly by an expected improvement in percent by 2018. Achieving further pov- the manufacturing sector. diamond prices as developed economies erty reduction will be challenging with the Over the medium-term, diversification of stabilize and continued fiscal stimulus pace of progress constrained by limited the economy and exports away from min- that will propel non -mining activity. private sector job creation, particularly in ing is a priority. Structural reforms re- Lower fuel and commodity prices, slower urban areas, and reliance on low produc- main critical in the medium term to man- credit growth and weakening economic tivity agricultural jobs in rural areas, com- age volatility and sustainability risks, activity will keep CPI inflation at the low- bined with reduced credit growth and including reforms in the water and ener- er end of the Central Bank’s policy band high levels of household indebtedness. gy sectors and addressing labor market of 3-6 percent. distortions to spur private sector job crea- The fall in mining revenue is expected to tion. Investments are needed in infra- gradually recover as developed economies stabilize. However, SACU transfers are Risks and challenges structure and human capital, as well as establishment of trade, business environ- expected to remain soft mainly due to a ment, and immigration policies that en- weak economic outlook for South African As long as growth is heavily dependent courage competition. growth to near 1 percent through 2017. on commodity exports and public sector The combination of expenditure growth activity, Botswana will remain heavily and lower revenue is expected to push the exposed to external shocks. Slowdown in TABLE 2 Botswana / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2013 2014 2015 e 2016 f 2017 f 2018 f Real GDP growth, at constant market prices 9.9 3.2 -0.3 3.7 4.3 4.4 Private Consumption 10.4 4.3 1.9 2.5 2.6 3.0 Government Consumption 14.2 2.2 10.9 -4.8 1.5 2.0 Gross Fixed Capital Investment -6.8 15.3 4.5 9.8 5.2 4.7 Exports, Goods and Services 29.8 12.1 -29.4 5.5 9.3 9.5 Imports, Goods and Services 11.6 6.9 -20.7 13.2 6.3 6.6 Real GDP growth, at constant factor prices 10.1 3.0 -0.3 3.7 4.3 4.4 Agriculture 1.3 -0.3 0.1 0.9 1.1 1.2 Industry 16.1 -0.5 -4.0 3.1 4.6 4.7 Services 7.4 5.0 1.6 4.1 4.2 4.4 Inflation (Consumer Price Index) 5.9 4.4 3.0 3.4 3.6 4.0 Current Account Balance (% of GDP) 8.9 15.7 9.3 2.2 2.9 4.3 Fiscal Balance (% of GDP) 5.6 3.8 -2.9 -3.9 -3.0 -1.5 Debt (% of GDP) 17.8 17.2 18.3 14.5 12.0 11.5 Primary Balance (% of GDP) 6.2 4.4 -2.2 -3.2 -2.5 -1.0 Poverty rate ($1.9/day PPP terms) a,b,c 13.2 13.0 13.4 13.0 12.3 11.6 Poverty rate ($3.1/day PPP terms) a,b,c 28.5 27.9 28.7 28.0 27.0 26.0 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: 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 co nstant P P P . MPO 201 Apr 16