Botswana may face challenges in meeting the International Monetary Fund’s (IMF) long-term budget surplus target of 1 percent, as noted in a recent report by Business Monitor International (BMI).
The report raises concerns over Botswana’s fiscal sustainability, especially given the potential for increased public spending if the Umbrella for Democratic Change (UDC) government fulfills its campaign commitments.
BMI cautions that increased government spending could create structurally larger budget deficits, especially as Botswana’s mineral revenues are threatened by a slowdown in global diamond demand. With diamond prices—a major income source for Botswana—under pressure, the country’s fiscal stability is at risk, making it harder to achieve the IMF’s growth targets.
The IMF’s forecast for Botswana is centered on achieving sustainable growth, however, the BMI report suggests that the combination of fiscal expansion and lower-than-expected mineral revenue could hinder the nation’s ability to maintain fiscal balance. As a result, the country’s long-term budget surplus target of 1.0 percent of GDP could be out of reach in the coming years.
“Assuming the UDC follows through on its campaign pledges, higher public spending will likely result in structurally larger budget shortfalls, particularly as mineral revenues perform poorly due to depressed global diamond demand,” BMI says. According to BMI, “This could weigh on Botswana’s fiscal stance, making it more difficult to achieve IMF targets, such as reaching an average long-term budget surplus of 1.0 percent of GDP.”
That said, BMI says, economic diversification will remain a priority for the UDC, as it did for the Botswana Democratic Party (BDP). It says key industries the UDC will look to target include tourism, finance, and agribusiness (sectors that have already been growing at encouraging rates).
“ We expect that the new ruling party will look to increase the size of the government in these sectors, using them as avenues to create employment, although there is a lack of clearly defined plans on how to develop these industries,” says BMI.
Analysts at BMI note that “Importantly, the UDC has given little insight into how it plans to reduce the economy’s reliance on the all-important mining industry, suggesting that the process of diversifying Botswana’s economy away from diamond exports could remain slow.”
BMI warned that “Despite the new administration’s strong mandate, the UDC faces mounting long-term challenges which could hurt its popularity throughout the five-year term.” It says Botswana’s economy remains heavily dependent on diamond exports and struggles to create enough jobs for the domestic workforce, issues that lack quick solutions.
“The unemployment rate in Botswana has been rising consistently over the past decade to 23.4 percent in 2023 according to the World Bank, due to economic volatility caused by mineral price shocks, with few employment alternatives available in the relatively undiversified economy,” says BMI.
It points out that “Although the UDC has expressed intentions to invest heavily in tourism as a growth avenue, the long-term nature of this objective (mining & quarrying still represents about 20 percent of Botswana’s economy) means that growth and employment returns are unlikely to be significant during its current term.”
