The International Monetary Fund IMF has projected Botswana’s economic growth to slow down to 1% in 2024, down from 2.7 % in 2023, primarily because of diamond market contradiction. In a statement released on July 12, the IMF attributed the decline to a reduction in diamond production, which will be partly offset by construction projects funded through fiscal expansion. IMF team led by Luc Eyraud, Division Chief in the IMFAfrican Department and Mission Chief for the Republic of Botswana visited Gaborone from 2nd to 12th July 2024.
Botswana relies heavily on diamond revenues, which account for about 40% of public revenues, nearly a third of GDP, and 75% of foreign exchange earnings. The natural diamond market is currently facing a crisis due to declining demand and prices, as consumers increasingly turn to synthetic stones.
Inflation is expected to remain within the Bank of Botswana’s target range of 3% to 6% in the medium term, supported by falling international oil and food prices, which keep inflationary pressures low.
“Inflation has remained below the ceiling of Bank of Botswana’s (BoB) objective range since spring 2023. After peaking at 14.6 percent in August 2022, inflation declined rapidly, mainly as a result of falling oil prices. The BoB has cut its policy rate twice by a cumulative 50 basis points since December 2023, following the 151 basis points increase that took place during 2022,’’ reads part of IMF statement.
IMF says some fiscal relaxation is warranted this year given the fall in mineral revenues, but the execution of the ambitious capital budget should be slowed down to contain the deterioration of the deficit and prioritize projects with the highest returns.
“Botswana’s economic growth decelerated from 5.5 percent in 2022 to 2.7 percent in 2023, below the long-run potential growth of 4 percent. A sharp decline in diamond trading and mining activities was the main contributor to the slowdown, as global demand for rough diamonds decreased. Despite the weak diamond market, the external position improved last year because of strong customs union revenues, Eyraud said On the fiscal front, the IMF forecasts a budget deficit widening to 6% of GDP in 2024, driven by falling mining revenues and increased capital expenditures.
The IMF emphasizes the need for medium-term fiscal consolidation to achieve the authorities’ goal of a budget surplus by 2026, thereby preserving fiscal sustainability.
To boost growth and job creation, the IMF recommends increased private sector participation, export diversification, and improved public sector efficiency. Policy priorities include reforming state-owned enterprises, enhancing trade-related infrastructure such as internet, energy, and logistics, and implementing trade facilitation measures