The World Bank expresses mixed feelings in its latest projections for Botswana’s economic situation.
In a brief titled “Macro Poverty Outlook for Botswana: April 2022,” the bank acknowledges that the outlook is not without substantial downside risks. Citing a number of factors, the World Bank says one of the downside risks is emergence of new COVID-19 variants which continue to pose a threat to recovery.
Other factors include prolonged higher inflation which could lead to monetary tightening around the world. The World Bank warns that exacerbated by the Ukraine-Russia conflict through high food and fuel prices, this could also slow recovery. “Muted mineral receipts against envisaged lower SACU receipts would dampen the fiscal position,” the brief notes. “Poverty levels are projected to reach 56.2 percent in 2022 (measured using the upper-middle-income country poverty line).”
It notes that inflationary pressures were on an upward trajectory by adjustments to regulated prices, notably utilities, VAT, Botswana Housing Corporation rentals and increases in domestic fuel prices. The World Bank says with the government channeling fiscal resources towards healthcare and supporting the economy, the 2020 projected deficit increased to 9.4 percent of GDP, hence further Government Investment Account drawdowns. Debt is projected to reach 25.5 percent of GDP in 2021 from 23.3 percent in 2020.
The brief says COVID-19 exacerbated existing economic and social challenges, setting back some gains made in alleviating poverty and underscoring the urgent need for a significant shift towards a more diversified and export-led economy, with the private sector playing a leading role. “Improving public sector spending efficiency, rationalising the SOEs (state-owned enterprises) and addressing constrains that hinder private sector engagement in trade and investment are central to the recovery,” says the World Bank.
But all is not gloom and doom, the brief says. “Growth is expected to moderate in 2022 but still maintain a robust recovery at 4.1 percent as the base effects from the pandemic shock fade,” it observes. “Progress in vaccination will support economic activity, especially non-mining sectors that have continued to be affected by the pandemic in 2021.”
The World Bank says diamond recovery is poised to remain robust, supported by external demand, while investment in renewable energy will support growth and contribute to removing supply constraint to higher private sector activity.
It notes that Botswana’s economic recovery rebounded strongly in 2021 led by the mining sector. Diamond mining increased by 35.4 percent from the first to the third quarters of 2021, contributing 6.1 percent to overall GDP growth. Non-mining sectors showed more mixed recovery trajectories. The hospitality sector remained affected by intermittent restrictions. The World Bank says implementation of structural reforms will support growth over the medium-term as the government pursues fiscal consolidation. Growth is expected to average over 4 percent over 2023-24.