Botswana’s booming economy has hit a slump in the road, slowing to a sluggish 1% in 2024, thanks to a sudden downturn in the in the diamond market.
But hold on- experts are predicting a glittering recovery, with the economy expected to rebound in the next two years.
Botswana’s economic growth decelerated from 5.5 per cent in 2022 to 2.7 per cent in 2023. But don’t pack up yet!
The latest International Monetary Fund (IMF) report is forecasting a comeback, with GDP set to skyrocket to 5.2% in 2025 and 4.8% in 2026.
“Although risks to the outlook remain elevated, a strong recovery is projected in 2025, driven by the rebound in diamond production and trade. But the economic outlook is highly uncertain, with the emergence of cheaper lab-grown diamonds, and the announced sale of De Beers by its UK parent company,” read the report.
With diamond production set at 21.1 million carats in 2024, the output is expected to slowly rise to 23.3 million carats in 2025 and subsequently 25 million carats in 2026.
While the 1% growth for the year 2024 falls far below the 4% potential, it is clear that diamond woes are dragging down the economy.
“The slowdown is mainly due to a fall in diamond production, partly offset by construction projects financed by the fiscal expansion,” reads the statement.
However, inflation has remained within the central bank’s medium-term objective range since July 2023 and it was expected to remain low.
“The financial sector is broadly sound, stable and resilient,” reads the report though IMF also notes that the fiscal deficit is projected to widen further to 6 percent of GDP, reflecting a further decline in mineral revenues and higher expenditure.
Furthermore, the IMF noted government’s plan for a substantial fiscal adjustment in the next two years to reach a fiscal surplus.
It said foreign reserves were expected to decrease to five months of import cover due to weak growth in customs revenue and higher government foreign debt repayments.
“A fall in diamond revenue could be accommodated by a mix of higher fiscal deficit and the reprioritization of capital expenditure, saying projects undertaken should bring the highest value for money.”
It welcomed the government’s planned fiscal consolidation, saying it was critical to end the depletion of government’s financial buffers and to build resilience against shocks and prevent fiscal sustainability.
Expectation is that one per cent of GDP fiscal surplus would generate sufficient savings to protect the budget against major economic shocks.
The IMF also welcomed government’s decision of not only focusing on expenditure, but also increasing revenues.
It supported the monetary policy because inflation has declined since August 2022 and was projected to remain within the medium term objective.
It noted that accelerating growth and job creation required a fundamental shift towards greater private sector participation and a more diversified export base as well as a more efficient public sector.
The IMF recommended that government should prioritise state owned enterprises modernization and improve the infrastructure for doing business such as providing Internet, energy and logistics.
“These goals could be enshrined in the new NDP, supported by time-bound and well-prioritised action plans,” the report concludes.
