The International Monetary Fund (IMF) has suggested that Botswana establish a new Sovereign Wealth Fund (SWF) to help rebuild fiscal buffers and strengthen economic resilience. According to the IMF’s report, while an SWF could provide a valuable institutional framework, achieving meaningful savings would require Botswana to implement stricter fiscal policies than those observed in recent years.
The IMF noted that Botswana has consistently posted fiscal deficits averaging nearly 4 percent of GDP over the past decade. To generate the necessary savings for an SWF, the IMF recommended that Botswana target a budgetary surplus of 1 percent of GDP on a sustained basis.
“A SWF could provide a useful institutional framework to support rebuilding buffers, but achieving significant savings to meaningfully fund an SWF would require much tighter fiscal policy than has been observed in recent years,” the report stated.
To meet this goal, the IMF called for a reform of Botswana’s fiscal framework, including adopting a new fiscal rule such as an expenditure ceiling. This reform would signal the government’s commitment to generating fiscal surpluses in the medium term.
“The institutional framework would need to be reformed by adopting (1) a new fiscal rule (e.g., an expenditure ceiling) that would enshrine the government’s commitment to generate fiscal surpluses in the medium term, and (2) a new SWF, where the savings would be invested and managed,” the IMF stated.
The IMF also advised that the new SWF adopt a “financing fund” model, linking inflows and outflows directly to the national budget, which is seen as a more stable alternative to savings based on mineral revenues. “A fiscal rule targeting consistent fiscal surpluses is more effective than saving based on mineral revenue fluctuations,” the report highlighted, stressing the importance of fiscal stability for public finances.
The IMF’s recommendations aim to help Botswana better manage its wealth from natural resources while insulating the country from external economic shocks. However, the report emphasised that substantial fiscal reforms would be necessary to prevent the SWF from undermining foreign exchange reserves.
The report comes shortly after Finance Minister Peggy Serame briefed Parliament on Botswana’s current financial situation. She pointed out that the Government Investment Account (GIA) had been declining sharply. The GIA fell from P30.5 billion in 2008 to P4.1 billion by May 2024, a dramatic decrease that has weakened the government’s ability to finance the national budget and cushion the economy against future shocks.
“This is indeed a marked reduction as it impairs the ability of Government to finance the budget and provide an adequate buffer to the economy against unforeseen events and shocks in the future,” Serame told Parliament.
The IMF concluded that if Botswana does not implement a binding budget rule and make a strong political commitment to fiscal prudence, it will be difficult to accumulate the savings needed for the SWF. The IMF further recommended that the fiscal rule should allow for budgetary flexibility in difficult times, ensuring both the accumulation of savings and the capacity to draw on those funds when necessary.
