Gaborone - The Deputy Managing Director of the International Monetary Fund (IMF), Tao Zhang, has warned Botswana to wean its economy of its dependence on diamonds or suffer the aftermath of their eventual depletion.
In his presentation during a courtesy call on President Mokgweetsi Masisi, Zhang said: “I am sure many of you would agree – diamonds are not forever.
“Botswana needs to mine a new growth model one where the role and size of the state is different and where the private sector takes the lead.”
He spoke about risks and warned that efforts are needed to prepare the Botswana economy for the future.
“I am encouraged by what I heard from President Masisi, policymakers, and business leaders when I met them today that the right choices will be made to transition the country to a new sustainable model, with more jobs, and higher and more inclusive growth,” he said.
In the near term, Zhang observed, fiscal sustainability is essential. “But it must be growth-friendly and mindful of the poor. This means containing public spending by adjusting its composition – away from non-priority spending while protecting investment and social protection expenditures,” he said.
He said this also calls for greater revenue mobilisation, such as lower exemptions and higher collection from property taxes.
“I am confident that the authorities will take the right measures to restore fiscal balance in the coming years and keep high savings for rainy days or future generations,” he said.
Beyond the current challenges, Botswana must not lose sight of what is needed for the future, Zhang noted.
“Like other countries in the region, Botswana needs to fulfil the aspirations of its young population by creating jobs, diversifying the economy, and reducing inequality. Botswana needs to ‘mine’ a new growth model. One where the role and size of the state is different and where the private sector takes the lead,” he observed.
He said Botswana, like many countries in sub-Saharan Africa, needs to reduce vulnerabilities from debt, while at the same time find ways to finance large infrastructure and social spending needs.
“These are essential to meet the UN Sustainable Development Goals and achieve higher and more inclusive growth,” he said.
He said when diversifying, consideration should be given to sectors with large export and employment potential, such as beef and tourism.
“Yet, unlocking the potential of these two sectors requires removing distortions and promoting market friendly solutions. This means removing monopolies to enable competition, improving air transportation and tourism infrastructure, and facilitating visa processes,” he said.
Touching on the role of the private sector, Zhang said a few things need to be in place for the private sector to play a central role in the economy.
“This includes a welcoming business environment with high quality public services and lower bureaucratic investment requirements. Technology, such as e-government, can be usefully tapped in this respect,” he said.
Zhang was optimistic that along with the high growth rates in the United States and China, there is a pickup in diamond prices, and sales and production are on the rise.
“On the other hand, the recovery in South Africa, as you may have seen in the latest forecast of the Reserve Bank, is not expected to be strong enough. At 1.2% this year and around 2% in the coming years, revenues that SACU countries get – Botswana included – are likely to be affected,” he said.
Given these developments, Zhang said IMF was cautiously optimistic about Botswana’s prospects.
“We expect a rebound in growth this year and next to about 4.5% – rising further to 5% over the medium term. Yet here too, there are risks, and efforts are needed to get the house in order and prepare the economy for the future,” he said