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Botswana: 2003 Article IV consultation
IMF Country Report No. 04/225, July 2004
International Monetary Fund
Staff Report for the 2003 Article IV Consultation
Prepared by Staff Representatives for the 2003 Consultation with Botswana
Approved by Juan Carlos Di Tata and Anthony Boote
March 9, 2004
В© 2004 International Monetary Fund
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The 2003 Article IV consultation discussions were held in Gaborone during November 19-
December 3, 2003. The mission chief met with President Festus Mogae, and the team met
with the Minister of Finance and Development Planning (MFDP), Hon. Baledzi Gaolathe, the
Bank of Botswana (BOB) Governor, Mrs. Linah Mohohlo, the Permanent Secretary of MFDP,
Mr. Serwalo Tumelo, other senior government officials, and representatives of the private
sector and civil society.
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The mission team comprised Messrs. Kibuka (Head) and Akatu, and Ms. Kim and Ms. Masha
(all AFR), Mr. Zaidi (FIN), and Ms. Kabia (Admin. Assistant, AFR). Mr. Steytler, Advisor to
Botswana’s Executive Director, participated in the policy discussions.
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At the conclusion of the last Article IV consultation on October 9, 2002, Executive Directors
urged the authorities to use the forthcoming Ninth National Development Plan as a tool for
addressing the budgetary impact of HIV/AIDS in a comprehensive manner, and for making
the difficult choices concerning government resources and spending in a medium-term policy
framework.
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Botswana’s core economic database is largely adequate for surveillance, although the quality
and timeliness of national accounts and key trade data need to be improved. A ROSC mission
in 2001 advised the authorities to align different reporting periods for the major sectors and to
enhance coordination among the data-compiling agencies. Botswana is a participant in the
Fund’s General Data Dissemination System (GDDS). Botswana’s relations with the Fund,
including technical assistance, are summarized in Appendix I, and its relations with the World
Bank Group in Appendix II. Statistical issues are described in Appendix III. Social and
demographic indicators are provided in Appendix IV.
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Botswana accepted the obligations of Article VIII, Sections 2 (a), 3, and 4 on
November 17, 1995. It maintains an exchange system that is free of restrictions on the making
of payments and transfers for current international transactions, except for a multiple currency
practice that is expected to expire in 2006, as discussed in paragraph 33. Botswana also
maintains a liberal regime for capital account transactions.
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Botswana will be holding elections for the parliament (which will then elect the president
shortly thereafter) likely in the fourth quarter of 2004. President Mogae is seeking a second
term in office.
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Executive Summary
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Following several years of rapid economic growth with stable macroeconomic
policies, Botswana faces difficult challenges in the years ahead, as diamond
production is near full capacity and an HIV/AIDS epidemic threatens to
undermine past economic gains.
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During 2003/04,1 efficiency gains in diamond production are expected to contribute to real GDP growth of 5.4 percent.
At the same time, inflation declined
to 6.4 percent during 2003 (11.2 percent in 2002) in response to the central bank’s
prudent monetary policy. The overall fiscal deficit is expected to decline to below
1 percent of GDP in 2003/04, while the external current account would remain in
surplus for 2003. The international reserves position remains strong, with a cover
estimated at about 25 months of imports.
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In 2003, Botswana launched the Ninth National Development Plan for 2003/04-
2008/09 (NDP 9), which outlines a strategy to diversify the economy and to combat
HIV/AIDS, including the free provision of antiretroviral drugs. In addition, the
country prepared a National Strategic Framework (NSF) for HIV/AIDS (2003-09),
and a National Strategy for Poverty Reduction (NSPR), neither of which have yet
been fully integrated into the NDP 9 macroeconomic framework.
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Medium-term growth is projected to slow because of the plateauing of diamond
production, the impact of HIV/AIDS, and accelerating social expenditure. In the
absence of policy adjustments, the more moderate rates of growth are likely to lead to
a significant worsening of fiscal and external balances, compared with the last several
years.
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The authorities concurred on the need to strengthen tax administration,
especially VAT compliance, via the introduction of an autonomous revenue
authority. They are also scrutinizing expenditure in line with the country’s priorities
and are introducing user charges (e.g., school fees) to recover costs while protecting
the poor via safety nets. The authorities have also requested Fund technical assistance
to improve expenditure tracking for the priority sectors.
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The authorities intend to maintain the present exchange system based on a peg
of the pula to a basket of currencies. The pula was devalued by 7.5 percent against the basket in February 2004 to partly reverse its real effective appreciation in recent
years; the current level of the exchange rate appears to be broadly appropriate. The
authorities are implementing a number of structural reforms and are participating in
regional efforts to improve access to export markets; these steps will help to maintain
external competitiveness and promote economic diversification. In this context, the
staff stressed the need to maintain a prudent fiscal policy to support the exchange rate
peg.
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Financial sector reforms, including a partial privatization of the civil service
pension scheme, are an important part of the economic strategy.
The increased
risk associated with these reforms should be addressed through enhanced supervision
of the sector. The authorities are making efforts to strengthen monetary management.
The staff stressed the need to enhance the coordination of fiscal and monetary policies
in order to reduce pressure on interest rates and encourage private sector activity.
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The authorities agreed on the importance of continuing with efforts to improve
the coverage and timeliness of data compilation, including through the
establishment of an autonomous Central Statistics Office (CSO).
Footnote:
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The national accounts data cover the period July-June and the fiscal data cover April–March, while the balance of payments and monetary data are on the basis of the calendar year.
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