Amid reports that Botswana is showing signs of bouncing back from a deep COVID-induced slump, a senior official at the International Monetary Fund (IMF) has warned that any pick-up in growth may be short-lived.
Both the Ministry of Finance and Development Planning and the International Monetary Fund (IMF) have projected a growth rate of above 9 percent, with the latter revealing that Botswana’s growth will be the highest in sub-Saharan Africa.
In her opening remarks at the budget pitso for local authorities recently, finance minister Peggy Serame said from a contraction of 8.5 percent in 2020, the economy is expected to rebound in 2021with a growth rate of 9.7 percent for 2021 as a whole.
But speaking during a press conference on the Regional Economic Outlook for Sub-Saharan Africa, the Director of African Department at the IMF, Abebe Selassie, warned that the growth could be dragged down by the pandemic, suggesting that Botswana could witness weak recovery in the medium-term.
“As you know, Botswana was hit very hard by the pandemic last year and there is an element of a bounce from that very significant contraction that the economy faced, which is leading to the very high number,” said Selassie. “There are a number of one-off factors that will contribute to the very high growth that we are seeing.
“This high growth is good and it is something to be grateful for. But I think over the medium-term we will see growth reverting to the pre-crisis path, which is of course considerably lower than the 9 percent that will be registered this year.” In terms of risks to the outlook, in Botswana’s case, a lot is going to depend on the reforms that are being pursued by the government.
“Pre-crisis, an important policy agenda item was economic diversification from relying on diamonds to broadening sources of economic activity that could bolster growth and revenues,” Selassie said opining that the agenda is something that will need quite a bit of attention against social protection. In addition, Selassie said, strengthening human capital is also going to be a very important part of the policy agenda. “Subject to progress in these areas, there should be an upside to the growth path that we are seeing in our projections,” he noted.
Selassie was responding to a question from a participant who sought clarification on IMF’s economic projections for Botswana with growth being noted at 9.2 percent for 2021. The participant added: Since IMF believed that Botswana’s growth would be the highest in sub-Saharan Africa, how did the IMF come up with that figure and what would be driving the growth and where was the IMF weighing the risks – upside or downside for 2021?
Meanwhile, in its report, the IMF said Botswana and the Seychelles have vaccination rates significantly higher than the regional average and have upgraded their 2021 growth forecasts accordingly. Aside from different levels of policy support, the crisis has also highlighted key differences in resilience across countries, the report said.
“Again, comparing resource-intensive countries with non-resource-intensive countries, the latter tend to have a significantly more diversified economic structure, which not only helped mute the initial impact of the crisis but also allowed these countries to adapt quickly and bounce back swiftly,” the report noted. “However, resource-intensive economies were hit the hardest by the crisis and are expected to recover relatively slowly.”
It said improvements in revenues outpaced expenditure in the first half of 2021, leading to improved fiscal balances in most countries. But revenue has not recovered to pre-pandemic levels. Historically, the report said, increased tax revenue mobilisation has usually been the main policy lever for bridging the gap between spending pressures and public debt sustainability.
Yet in sub-Saharan Africa, it noted, progress has often been disappointing and is likely to be even more politically difficult in current circumstances because the crisis has left many businesses and households with fewer resources. “Indeed, in some countries, many have relied on tax forbearance or delayed tax payments to make it through the crisis (for example, Botswana, Burkina Faso, Cameroon, the Democratic Republic of the Congo and Ethiopia,” said the report.