IMF Slashes Botswana’s 2024 growth forecast to 1 Percent
When delivering the 2024/25 financial budget in February, Minister of Finance Peggy Serame projected that the local economy will grow by 4.2 percent.
Months later Bank of Botswana issued a warning indicating that the target was unlikely to be achieved due to the persistent headwinds in the global market.
Fast forward to July, International Monetary Fund (IMF) has announced that Botswana’s economy is estimated to continue its downward trajectory and expand by one percent in 2024 due to headwinds affecting the diamond sector.
However, this thwarts the country’s aspirations of moving from a middle income economy to a high income state by 2036.
In order to attain that, Botswana’s economy has to averagely grow by 6 percent year -on -year over the next 16 years.
With a less diversified economy reliant on mineral revenue, especially diamonds, this seems to be a mammoth task as Botswana is already playing catch up in terms of economic growth.
Earlier in April, IMF made an estimate of 3.6 percent growth mainly due to lower diamond production.
With diamonds playing a key role in the local economy, Botswana gets 30-40 percent of its revenue from diamond sales while 75 percent of foreign exchange earnings also come from rough stones.
However, lower consumer demand and global economic weakness has lowered the demand outlook for diamonds, which are traditionally considered as luxurious items.
IMF Africa Division chief Luc Eyraud said, “Looking ahead, the economy is expected to decelerate further this year, with growth projected at one percent. The continued slowdown is mainly due to a fall in diamond production, partly offset by construction projects financed by the fiscal expansion,” said Eyraud explaining that in the medium term growth is estimated to converge towards 4 percent as diamond mining recovers.
In 2023 economic growth decelerated from 5.5 percent to 2.7 percent as a result of a sharp decline in diamond trading and mining activities as global demand for diamonds went down.
The budget deficit is also expected to widen to 6 percent from 3.5 percent due to a fall in mineral revenues.
“Some fiscal relaxation is warranted this year given the fall in mineral revenues, but the execution of the ambitious capital budget should be slowed down to contain the deterioration of the deficit and prioritise projects with the highest returns. The current deficit is projected to widen in 2024 given the weak diamond exports followed by a rebound next year. The rebound is predicted on a recovery in the diamond market and continued elevated customs union transfers,” said Eyraud urging Botswana to consider slowing down new infrastructure projects to help the economy.
“The financial sector remains sound and stable despite the economic downturn. Accelerating growth and job creation requires a fundamental shift towards greater private sector participation and a more diversified export base with a more efficient public sector,” he added.
Meanwhile, there is light at the end of the tunnel with non-mining sectors experiencing significant growth in 2023 as per Bank of Botswana annual report.
Finance, insurance, and pension fund output grew by 3.7 percent driven by central banking, monetary intermediation and financial services which all experienced growth.
The construction sector expanded by 3.4 percent compared to a slower growth of 2.9 percent in the corresponding period due to ongoing construction projects, including shopping malls, and commercial and residential properties across the country.
Due to drought, agriculture output increased by a mere 1.1 percent compared to a higher growth of 2.7 percent in the previous year.
Low rainfall coupled with high temperatures for the past two ploughing seasons resulted in poor crop yields and affected all agricultural sub sectors hence the declaration of a drought year and subsequent introduction of government subsidies to cushion farmers.
