EKONOMİ YAYINLARI
Botswana

Botswana

Population 2.3 million
GDP 6,420 US$
A4
Country risk assessment
A4
Business Climate
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Synthesis

major macro economic indicators

  2019 2020 2021 (e) 2022 (f)
GDP growth (%) 3.0 -8.5 9.2 4.7
Inflation (yearly average, %) 2.7 1.9 5.8 5.0
Budget balance (% GDP)* -8.6 -9.9 -5.0 -6.4
Current account balance (% GDP) -8.4 -10.6 -4.0 -1.9
Public debt (% GDP)* 16.3 19.5 22.8 27.2

(e): Estimate (f): Forecast *Fiscal year from 1st July - 30th June

STRENGTHS

  • Abundant natural resources (especially diamonds, but also copper and nickel)
  • Low public and external debt
  • Substantial foreign exchange reserves
  • Political stability and the level of governance put the country among the top sub-Saharan African countries in terms of international business environment rankings
  • Member of the Southern African Customs Union (SACU)

WEAKNESSES

  • Dependent on the diamond sector (over 90% of exports)
  • Inadequate infrastructure (production and distribution of water and electricity)
  • High inequality and unemployment, poverty stuck at a relatively high level

Risk assessment

At home and abroad, the recovery remains on track

The economy is expected to return to its pre-pandemic level of output in the early months of 2022. Immunization levels are high enough that strict health measures are not expected. While the 2021 rebound was mostly export-driven, in 2022, domestic demand will support the recovery. Indeed, given the sustained reduction in unemployment and persistent positive income effects linked to wage increases for civil servants, private consumption is expected to be the main driver of growth. Foreign capital looking for emerging market returns will boost private investment, notably in mining and infrastructure. Since fiscal consolidation will not fully kick in until 2023, public investment will remain strong, supporting gross fixed capital formation.  The performance of the diamond industry, which accounts for 90 % of total merchandise export receipts, will strengthen in coming years, with output  for 2022 expected at 9% above 2019 levels. Copper will also play an increasingly larger role in the mining sector, as operations in the Khoemacau mine expand. The recovery of the tourism sector, which accounted for 15% of GDP before the recession, will intensify, but is expected to remain below pre-pandemic levels. The recovery in imports will partially mitigate the effect of growing exports, but the external sector should nonetheless bring a positive contribution to growth. Driven by higher oil prices and rising consumption taxes, inflationary pressures will continue to manifest in the first semester. However, the headline figure is expected to remain within the inflation target and to moderate in the back half of the year.

 

Twin deficits continue to improve, slight financial stability risks loom

The state has deployed substantial means in response to the pandemic and its economic aftershock. The total policy response amounted to around 4% of 2020 GDP, including around 1% of GDP of solvency support for firms. The government further complemented this emergency support with the “Economic Recovery and Transformation” plan, a medium-term expenditure program aimed at diversifying the economy through digitalization investments and other productive infrastructure (supported by a USD 250 million World Bank loan). While all of this is favourable for long-term growth, it creates fiscal pressures on the short run. This is reflected in Moody’s decision to downgrade the sovereign rating from A3 to A2 in April 2021. Although public debt increased rapidly during the crisis (as a share of GDP), it remains substantially lower than the average emerging or African country. With the phase-out of pandemic measures and the cyclical recovery of tax revenue (on top of structural measures like hikes in the VAT rate and the fuel levy), the budget deficit will moderate.  The current account deficit will continue to narrow as the recovery in diamond revenue and tourism exports will compensate a growing import bill. The narrower deficit will also be on the back of higher transfers from the SACU , which are projected to rise with the recovery in world trade. The primary income deficit will consolidate around its pre-pandemic level of 6% of GDP, driven by recovering outflows of mining revenue.  Despite a decline in foreign exchange reserves, they remain at a comfortable level, covering more than 7 months of imports (compared to over 10 months before the pandemic). In addition, external public debt remains low at 13% of GDP. Although banks have proven surprisingly resilient throughout the crisis (in terms of capitalization, liquidity and asset quality), pandemic-related measures such as restructurings and loan guarantees could be delaying solvency risks.

 

Stable political situation, but inequality is a persistent challenge

The Botswana Democratic Party (BDP), which has been in power since the country's independence in 1966, won 67% of the vote in the October 2019 parliamentary elections. The incumbent president, Mokgweetsi Masisi, therefore remained in power. Despite losing some popularity for his management of the pandemic, and a growing rivalry with his BDP predecessor Ian Khama, Masisi is expected to stay in power at least until the 2024 elections. Having governed over several decades of growth and development, the BDP enjoys substantial political capital. Still, the high levels of unemployment (at 24% in early 2021) and inequality (9th highest Gini coefficient in the world) in a context of declining structural growth could challenge social stability. The country has been a poster-child of good governance in Africa, boasting peaceful and transparent elections. However, some trends appear to point to institutional decline, such as the excessive influence of the executive over the judiciary (WEO Global Competitiveness Report), or questionable budget transparency (Ibrahim Index of African Governance). The judicial environment is broadly business-friendly, with strong property rights and investor protection, special economic zones and relatively light red tape. The country has recently been removed from the FATF’s grey list (countries with questionable financial transparency), recognizing the country’s efforts in terms of monitoring financial corruption and money laundering.

 

Last updated: February 2022

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