BOTSWANA

Key conditions andchallenges

Table 1

2023

Population, million

2.7GDP, current US$ billion

22.1

GDP per capita, current US$8249.6

International poverty rate ($2.15)

a15.4
a38.0

a63.5

Lower middle-income poverty rate ($3.65)
Upper middle-income poverty rate ($6.85)
Gini index

a53.3

School enrollment, primary (% gross)

b93.7

b61.1

Total GHG emissions (mtCO2e)

53.3

Life expectancy at birth, years

Source: WDI, Macro Poverty Outlook, and official data.
a/ Most recent value (2015), 2017 PPPs.
b/ Most recent WDI value (2021).

In 2023, economic growth slowed to 3.3
percent, driven by reduced global demandfor diamonds. In FY24-26, economic activity is projected to stabilize at 3.5-4.0
percent, buoyed by an expansionary fiscal
policy and growth in the non-mining private sector. Diamond value chain risks
underscore the urgency of implementing
structural reforms to boost growth andjobs, including through human capitaldevelopment, enhancing market contestability, reducing regulatory andtrade barriers, allowing for reductionsin poverty and inequality.

Until the 2009 global financial crisis, abundant diamond resources, political stability,
effective institutions, and prudent macroeconomic policies delivered robust
growth. They allowed the government todeliver improved public services, including health, education, and infrastructure.
Social assistance programs also served toreduce extreme poverty.
Yet, since the early 2010s, structural constraints contributed to slowing down economic expansion as the economy remains
dominated by the diamond sector, which isincreasingly vulnerable to boom-and-bust
cycles on international markets. Poor learning outcomes, skills mismatches, and infrastructure deficiencies in transportation,communication, energy, and water services
have negatively impacted productivity andcompetitiveness. Regulatory barriers andred tape have increased the cost of doing
business, stifled entrepreneurship, and deterred investment. The large state presence,
especially state-owned enterprises, hascrowded out private investment.
The current growth model, based on low-labor-intensive sectors yields fewer jobs. The
unemployment rate remains high, at 25.9
percent in 2023Q3, mainly affecting theyouth. Poverty, projected at 14.3 percent in
2022 using the US$2.15 per day international
poverty line, remains high for Botswana’s
income level, while inequality (Gini index of53.3) is among the world’s highest.

Reforms to promote competition, reducethe costs of doing business, remove policy
barriers to trade and services, and promotetrade facilitation would strengthen economic diversification, boost growth andexports, and encourage job creation. Improving the effectiveness and efficiency of
public services, including public investment efficiency and strengthening education outcomes to meet the demand forskills in the private sector, could further
enhance growth. Incentivizing innovative
new businesses to emerge and grow, attracting Foreign Direct Investment, creating linkages with local firms, encouraging
market contestability would improve thebusiness environment.

Recent developments
Economic activity moderated to an estimated 3.3 percent in 2023 following the5.8 percent rebound in the aftermath of
the COVID-19 pandemic spurred by thedecline in global demand for rough diamonds, falling prices, and intensifying
competition from synthetic diamonds.
Headline inflation declined in 2023, averaging 5.2 percent compared with 12.2
percent in 2022, supported by tight monetary policy conditions and a reduction
in fuel prices. In December 2023, the central bank cut the policy rate by 25 basis
points to 2.4 percent to address the persistent and sizable output gap.
The financial sector remains profitable andstable. However, the ongoing repatriationof pension fund assets poses liquidity risks

FIGURE 1 Botswana / Fiscal consolidation will rest on
spending cuts

FIGURE 2 Botswana / Actual and projected poverty rates
and real GDP per capita

Percent of GDP
45

Poverty rate (%)

Percent of GDP
240

Real GDP per capita (constant LCU)

70

90000
80000

060-250

25-44050000

20-63040000-820-10

1035
30

15

70000

02018

2020

Revenues and Grants

2022

2024

Expenditures

10000

0-12
2016

30000
20000

105

60000

02009 2011 2013 2015 2017 2019 2021 2023 2025

2026
Balance

Sources: Statistics Botswana and World Bank.

International poverty rate

Lower middle-income pov. rate

Upper middle-income pov. rate

Real GDP pc

Source: World Bank. Notes: see Table 2.

MPO1Apr 24in local financial markets due to limited investment opportunities.
After two years of a balanced budget, the fiscal balance deteriorated in 2023, despite
higher Southern African Customs Union(SACU) revenues. Higher recurrent spending alongside capital investments underscore the need for improved expenditure efficiency. Increased subsidies necessitate reevaluating their criteria, enhancing monitoring and evaluation, and exploring alternative policy instruments beyond price controls to improve spending quality. Implementation deficiencies constrain the expansionary fiscal stance and require lower
spending growth and a strong recovery inmineral revenues.
The current account turned into a surplus of
2.5 percent of GDP by 2023Q3 due to increased SACU receipts and mineral export
proceeds. Foreign exchange reserves increased, averaging US$4.7 billion in October
2023, equivalent to nine months of imports,
supported by increased SACU receipts andhigher capital inflows.
Amid high domestic prices and weak job
creation, poverty is estimated to have remained broadly unchanged.

Outlook
The economy is projected to expand by
3.5-4.0 percent annually over 2024-26 as
the global economy strengthens and demand for copper and diamonds increases. Projected investments in power generation from coal bed methane, batterygrade manganese, and solar photovoltaic
projects will support GDP growth.
An expansionary fiscal policy and accommodative monetary policy in 2024
are expected to support the economy
but effects of the first are mitigated byleakages owing to a high import content. The fiscal deficit is projected to deteriorate to 3.4 percent of GDP in FY24,
driven by large increases in capital andrecurrent spending and to steadily improve over the medium term, reaching a surplus by 2026. Projections hingeon SACU revenue trends and the government’s initiatives to boost domestic
revenue mobilization, which include theintroduction of electronic invoicing forvalue-added tax.

TABLE 2 Botswana / Macro poverty outlook indicators

Inflation is projected to remain within thecentral bank’s target range of 3-6 percent,in line with declining import prices of energy and food. The current account balance is projected to improve, driven by arecovery in global demand for diamonds.
The expansion of the private sector is expected to remain too subdued to increase
the demand for employment. Lower inflation is expected to support household
purchasing power. Still, limited job opportunities will constrain significant reductions in poverty and inequality,
which is projected to remain high, at 14
percent in 2024 based on the US$2.15 international poverty line.
Downside risks to the outlook include how
the G7’s decision regarding diamondtraceability may impact the diamond trade
and the local value chain; inward-looking
trade policies; delays in implementing theTransitional National Development Plan
and the severity of the ongoing drought,
which can impact output negatively andthe current account via higher imports, aswell as renew inflationary pressures andcreate fiscal pressures as the government
provides support to affected households.

(annual percent change unless indicated otherwise)

Real GDP growth, at constant market prices
Private consumption
Government consumption
Gross fixed capital investment
Exports, goods and services
Imports, goods and services

2021
11.8
2.4
4.0
-0.3
31.7
2.3

2022
5.8
4.5
3.0
0.0
-5.6
-11.8

2023e
3.3
2.4
2.5
-0.7
4.6
-10.4

2024f
3.5
2.8
4.3
3.6
7.0
7.6

2025f
4.3
2.8
-0.3
3.3
9.9
5.4

2026f
4.0
2.2
-0.9
1.8
10.2
5.2

Real GDP growth, at constant factor prices
Agriculture
Industry
Services

11.9
-1.0
19.3
8.1

5.8
2.4
7.6
4.8

3.3
2.6
4.0
2.9

3.5
2.0
4.4
3.0

4.3
2.4
4.6
4.2

4.0
2.2
4.7
3.6

Inflation (consumer price index)

6.7

12.2

5.2

4.9

4.7

4.5

Current account balance (% of GDP)Net foreign direct investment inflow (% of GDP)

-0.5
0.6

2.9
0.2

2.0
0.7

1.1
0.7

1.3
0.6

1.5
0.6

0.0
31.9
22.4
0.5

0.0
28.5
20.6
0.6

-2.4
30.0
22.0
-1.6

-3.4
31.7
25.0
-2.5

-1.6
29.2
22.5
-1.0

1.2
28.8
20.1
1.8

14.8
37.5
62.6

14.3
37.0
61.8

14.2
36.8
61.6

14.0
36.6
61.2

13.7
36.4
60.8

13.4
36.1
60.3

0.8
11.3

-0.7
11.3

-0.4
11.1

1.2
16.3

1.5
18.0

1.5
19.6

Fiscal balance (% of GDP)
Revenues (% of GDP)

abDebt (% of GDP)aPrimary balance (% of GDP)c,dInternational poverty rate ($2.15 in 2017 PPP)c,dLower middle-income poverty rate ($3.65 in 2017 PPP)c,dUpper middle-income poverty rate ($6.85 in 2017 PPP)
GHG emissions growth (mtCO2e)
Energy related GHG emissions (% of total)

Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD.
Notes: e = estimate, f = forecast.
a/ Fiscal balances are reported in fiscal years (April 1st -March 31st).
b/ Refers to Public and Publicly Guaranteed debt.
c/ Calculations based on 2009-CWIS and 2015-BMTHS. Actual data: 2015. Nowcast: 2016-2023. Forecasts are from 2024 to 2026.
d/ Projection for $2.15 poverty uses annualized elasticity (2009-2015) with pass-through = 0.87 based on GDP per capita in constant LCU. Higher poverty lines use regionalelasticity.

MPO2Apr 24