Elevates growth forecast by a percentage point
Identifies risks around under-execution of the development budget
Draws comfort from De Beers’ encouraging results
Standard Chartered Bank (Stanchart) has adjusted Botswana’s 2024 growth forecast upwards, elevating projections by a percentage point to 3.9%. The projections are conservative compared to the government’s but predominantly stem from the fiscal budget unveiled by the Minister of Finance, Peggy Serame.
Despite anticipating a relatively lax fiscal policy for the year, Emmanuel Kwapong, StanChart’s Economist – Africa, concedes Botswana’s propensity for counter-cycle fiscal strategies, a trait deeply ingrained in the nation’s economic history. Kwapong made these observations while providing insights into Botswana’s economic outlook.
“So in times when the diamond sector is not looking good, the government uses public sector and public spending to support growth,” Kwapong told a cadre of journalists adding that this was the case coming into the year.
Botswana’s economic trajectory typically mirrors global trends, and a deceleration is anticipated in 2023, aligning with prevailing global circumstances. According to the latest national accounts data unveiled by Statistics Botswana in December 2023, the domestic economy maintained an average growth rate of 3.0% during the initial three quarters of the year, notably lower than the 5.5% recorded over the corresponding period in 2022.
Minister Serame attributed this growth moderation primarily to the subdued performance of diamond trading and mining activities throughout 2023. Consequently, the domestic economy’s growth forecast for 2023 has been revised downwards from the initial projection of 3.8% to 3.2%, reflecting the prevailing economic landscape.
Over the short to medium term, the government anticipates the domestic economy to rebound to 4.2% and 5.4% in 2024 and 2025, respectively, as the world economy recovers.
Figure 1 Growth rebounded strongly in 2022 but headwinds emerged in 2023. Source: IMF, Standard Chartered Research
While the fiscal budget is anticipated to bolster this growth trajectory, Kwapong acknowledged that the scale of the stimulus package caught them off guard. The Government’s budgetary priorities aim to expedite project implementation, thereby catalysing opportunities for sustainable employment, enhancing living standards, mitigating poverty, addressing disparities, and ultimately advancing towards high-income status.
Significant allocations within the budget are earmarked for infrastructure development, recognising its pivotal role in fostering economic expansion and fostering private sector involvement.
Kwapong, however, identified certain risks, particularly concerning the potential under-execution of the development budget, given Botswana’s historical track record with implementation. While this is a risk the bank is closely monitor, he acknowledged policies and measures to try and address this.
He drew comfort from De Beers’ encouraging results in the first cycle sales.
Figure 2, First cycle sale of 2024 shows signs of recovery. Source: De Beers, Standard Chartered Research
The question remains: will this momentum persist, or will diamond prices soften once more? Kwapong refrained from providing a definitive answer at this early stage due to the high degree of uncertainty prevailing in the market.
Some risks, as highlighted by Kwapong, parallel those articulated by the Minister of Finance, including the potential implications stemming from the G7’s proposed implementation of diamond verification and certification measures. Serame cautioned that such measures could adversely affect the country’s capacity to accrue foreign exchange reserves and government revenue.
As of November 2023, the Government Investment Account stood at P11.40 billion, down from P16.80 billion recorded in November 2022. This decline primarily stemmed from reduced mineral receipts, notably impacted by decreased diamond sales throughout the year.
An ongoing concern regarding the economy is its continued reliance on diamonds and public expenditure, rendering it susceptible to external shocks.
Figure 3Botswana has made limited progress on reducing its diamond dependence. Source: Bank of Botswana, Standard Chartered Research
For the 2024/2025 financial year, the government forecasts total revenues and grants to reach P93.58 billion. The largest contributor is expected to be customs and excise receipts, estimated at P26.46 billion, driven by an increase in Botswana’s share of the Southern African Customs Union (SACU) revenues. Following closely, mineral revenue is projected at P25.05 billion, constituting 26.77% of total revenues. Non-mineral income tax and VAT are anticipated to contribute P22.0 billion (23.5%) and P15.24 billion (16.28%) of total revenues and grants, respectively.
StanChart holds a more conservative stance regarding revenue estimates, particularly concerning mineral and VAT receipts. In light of Kwapong’s expressed concerns regarding the government’s ability to absorb the development budget, he anticipates that the deficit may fall short of the government’s projections.
Figure 4 Botswana’s fiscal position has deteriorated on more frequent deficit. Ministry of Finance, Standard Chartered Research
“We think that the fiscal deficit for 2024/2025 will be about 2.3% compared to 2.8% that the authority projected,” Kwapong said.
Nevertheless, the bank maintains the belief that the current account will sustain a surplus, which bodes well with the accumulation of foreign reserves.
Figure 5Fiscal buffers have been eroded, limiting scope for response to future shocks: Source: Ministry of Finance, Standard Chartered Research
Serame emphasised that the level of the Government Investment Account remains notably low compared to historical trends, thus constraining the government’s ability to sufficiently shield the economy from potential future shocks. She affirmed the government’s steadfast commitment to its medium-term objective of fortifying financial buffers as a means to enhance resilience against economic uncertainties.
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