Botswana Faces an Uphill Battle to Attain High-Income Status

Though Botswana’s economy has registered an average annual growth rate of 4 percent over the last decade, it will need to grow by at least 6 percent per year to achieve high-income status by the year 2036. Speaking at an economic briefing on Wednesday, the Director of Research & Financial Stability at the Bank of Botswana (BoB), Innocent Molalapata, said Botswana’s annual economic growth has generally been low in the last 10 years. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="3" ] “What we have observed is a strong correlation between mining and total GDP,” he said. “While the 10-year profile was generally similar, both mining and non-mining, we realised that the mining sector exhibited higher volatility.” 13 years whence He added that the non-mining sector showed resilience. But the country’s target of attaining a high-income status by 2036 - 13 years from now - will require an average annual growth of 6 percent, which Molalapata thinks can be done. “To achieve this,” Molalapata noted, “Botswana’s real GDP will need to grow from around 198 billion in 2022 to 449 billion in 2036. The real GDP per capita will need to increase from around P81,000 to P151,000 in 2036. The economy was growing at an average of 4 percent for the last 10 years.” But the volatility of the mining sector and vulnerability of the heavy dependence of the economy on it will make achieving the 6 percent annual growth rate that is necessary to become a high-income economy difficult. “But with diversification starting from the mining sector will help,” Molalapata said. “The short of it is that we need to do more in terms of diversification, starting with diversification within the mining sector first.” World Economic Outlook The International Monetary Fund’s (IMF) World Economic Outlook revised its figures slightly upwards on Tuesday this week and forecast the global economy to grow by 3 percent in 2023, from 2.8 percent initially projected. The 2022 growth has also been revised from 3.4 percent to 3.5 percent. According to Molalapata, when the global economy is doing well, this also reflects in the domestic GDP picking up. “So the 2.8 percent being revised to 3 percent means, keeping other things constant, we are likely to see the 4 percent projected growth in our economy also being revised slightly upwards,” he stated. “But forecasts for GDP growth are done by the Ministry of Finance, not by the (central) bank.” The Deputy Governor of BoB, Dr Kealeboga Masalila, concurred that attaining an annual 6 percent could be a challenge. Harnessing opportunities “This is why we are talking about economic diversification - harnessing opportunities from climate change transition, digitilisation and providing infrastructure for sectors like agriculture,” he said. “In short, there are opportunities that are there in terms of policies and reforms and sectors that can drive that. We believe we can get there if we take those opportunities. Take agriculture, for example. That is a sector that is ripe for a nip in productivity.” But the Deputy Director of Research & Financial Stability, Dr Leonard Setshegetso, noted that Botswana’s fiscal balance has been deteriorating. Stalling diamond revenues “As an example, since 2017, the fiscal balance to GDP has been negative and is projected at -2 percent for 2022,” he said, pointing out that social services and infrastructure development have been increasing against stalling diamond revenues. His brief was presenting on Building Economic Resilience through Fiscal, the External Sector, Sustainability and Climate Change Resilience. Dr Setshegetso said the ratio of government expenditure to GDP has been averaging 35.5 percent since 2017 and is projected at 34.7 percent in 2022. “Public expenditure has therefore not been moderating, unlike in the past,” he noted. Structural deficits The second element of fiscal sustainability is public debt. “In the advent of structural deficits, it is important for the government to recognise the role of debt in managing deficits,” Dr Setshegetso said. “As a result, public debt has been rising steadily. From 2008, it has been rising from around P5 billion and is projected at P51.3 billion in 2022/2023.” Nonetheless, he added, the the statutory limit of public debt to GDP ratio is 40 percent. Even so, the widening fiscal deficit has underscored the need to enhance tax collection for resource mobilisation because tax structure is the third element of attaining fiscal sustainability. “Tax policies are therefore integral to Botswana’s fiscal and economic resilience,” Dr Setshegetso said. Some solace “Although the proportion of debt to GDP has been gradually declining, the tax revenue to GDP ratio has declined from 36 percent in 2012 to 26 percent in 2020/2021. But it is projected to recover to about 27 percent in 2021/2022.” However, as he pointed out, Botswana may find some solace in the fact that in terms of 2020/2021 figures (26 percent), its tax revenue as a percentage of GDP beats the global average of 15.8 percent. But he noted that the prevailing concern is the undiversified tax base where the country derives a significant portion of tax revenue from minerals and customs and excise. Nevertheless, he said, widening the tax base does not necessarily mean introducing multiple taxes and underscored the need for economic diversification. Key ingredient “With regards to widening the tax base, economic diversification itself would be a key ingredient,” Dr Setshegetso stated. “Manufacturing is one of the key areas where we can make an effort to grow the economy and widen the tax base.” He added that and diversifying the economy and manufacturing would said generate incfreased employment and therefore increased tax revenue. In light of fiscal challenges outlined, Dr Setshegetso said it is important to recognise that they mean a different era on the fiscal landscape that calls for reinventing fiscal management in ways that address sustainability. Fiscal resilience He said there are opportunities to maintain fiscal resilience and identified is targeted subsidies as one of them. “Indiscriminate social support burdens the fiscus,” he said. “It is therefore important to determine the eligibility for social protection and target the most vulnerable population.” Another opportunity he identified is rationalisation of state-owned enterprises (SoEs). If done in phases, he said, it can reduce the quantum of subventions and contain costs. Dr Setshegetso said another means is acceleration of implementation of the privatisation policy of 2000. He identified yet another opportunity as private sector participation. “(This) will drive economic growth and accelerate infrastructure development and ultimately reduce the fiscus burden through shared responsibilities associated with Public-Private Partnerships,” he said. [/ihc-hide-content]

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Botswana Faces an Uphill Battle to Attain High-Income Status

According to principals at the Bank of Botswana, an annual economic growth rate of 6 percent is necessary for Botswana to transition from an upper-middle income economy to high-income status by 2036

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Botswana Faces an Uphill Battle to Attain High-Income Status

According to principals at the Bank of Botswana, an annual economic growth rate of 6 percent is necessary for Botswana to transition from an upper-middle income economy to high-income status by 2036

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