The African Development Bank (AfDB) predicts a 4 percent growth in Botswana’s economy in the fiscal year 2024-25, citing stronger diamond sales.
The prediction follows a forecast by the Minister of Finance, Peggy Serame, who projected a 4.2 percent increase in national output – GDP in February this year. Much like the AfDB, the minister also attributed the anticipated growth acceleration from 2023 due to improved performance in the diamond sector. In 2023, Botswana’s GDP grew by 2.7 percent.
According to the bank’s latest report, “African Economic Outlook 2024,” released recently, Botswana’s economic growth is expected to rebound to 4.0 percent in 2024 as diamond sales recover.
However, the Bank warned that “The outlook’s downside risks include higher than expected inflation from supply chain disruptions due to rising geopolitical tensions, weaker diamond trade if demand remains depressed, El Niño-driven weather patterns, and the potential for persistent weak economic conditions in South Africa”.
AfDB says with the economy operating below full capacity, inflation may fall to 4.5 percent in 2024, staying within the central bank’s range. The Continental Bank says a narrowed fiscal deficit of 1.8 percent of GDP in 2024/25 will be supported by improved public finance management, business environment reforms, and successful implementation of the two-year Transitional National Development Plan.
“A current account surplus is projected, with higher diamond earnings and SACU revenues. Unemployment may be addressed in part by the 2023 De Beers diamonds sales deal in which Botswana’s higher control of diamond production (from 25 percent to 50 percent) is expected to generate new jobs along the industry’s value chains,” the Bank says.
The Bank recommended that as part of its efforts to advance its structural transformation, Botswana should target higher value addition in sectors with the highest job creation potential.
“To close the 41 percent financing gap in its $4.7 billion public investment program and position itself to take full advantage of the redesigned global financial architecture, Botswana could emphasise reforms that sustainably improve its legal and operational efficiencies to attract higher private capital flows,” says the Bank.
It says Botswana could also strengthen and mainstream the technical skills necessary for effective engagement in global financial negotiations and identification of well-targeted bankable projects for investment. It says in April 2024, with inflation expectations well anchored, the central bank maintained its monetary policy rate at 2.4 percent after having reduced it by 25 basis points in December 2023.
“The decline in the current account surplus to 0.9 percent of GDP in 2023 reflected lower mineral exports and Southern African Customs Union (SACU) revenues. International reserves improved to $4.8 billion in January 2024 (8.7 months of import cover), up from $4.0 billion at the end of 2022 (7.6 months),” AfDB says.
AfDB says year on year, the pula appreciated by 0.8 percent against the South African rand and depreciated by 3.4 percent against International Monetary Fund Special Drawing Rights in March 2024. The AFDB says the banking sector’s capital adequacy ratio averaged 19.7 percent in 2023, above the 12.5 percent prudential floor. The nonperforming-loan-to-gross-loan ratio was stable at 3.7 percent in December 2023 against 3.8 percent in December 2022. AFDB notes that Botswana’s poverty headcount ratio shrank from 17.0 percent in 2019 to 14.5 percent in 2022. In 2021, 20.8 percent of the population was multi-dimensionally poor. Unemployment was high, at 25.9 percent (25.4 percent in 2022), driven by 34.4 percent youth unemployment.
