Africa-Press – Botswana. Botswana’s economy – measured by the real gross domestic product (GDP) output – slowed down in 2023, and has been projected to further decrease this year, putting pressure on government on how to jumpstart the economy in an election year.
The real GDP grew by 0.9 percent in the third quarter of 2023, up from the 3.5 percent contraction in the second quarter which had slowed down from a 5.7 percent growth in the first quarter. On year-on-year basis, GDP moved slowly at 0.5 percent in the third quarter, lower than the 5 percent in 2022’s third quarter.
In 2021, the economy surged by 12 percent after the lifting of COVID-19 restrictions which had curtailed growth. The pace tapered in 2022, with GDP growing by 5.8 percent. Botswana’s Finance ministry projects GDP growth to moderate to 3.8 percent in 2023 and recover to 4.4 percent in 2024.
Even prior to the COVID-19 pandemic, Botswana’s economic growth has been steadily declining. GDP growth averaged 7.1 percent from 2005 to 2007, then slowed to an average of 6.4 percent during 2010 to 2012 period, further declining to an average of 4.6 percent in 2013 to 2015, and 3.9 percent between 2016 and 2018. From 2019 to 2021, the GDP averaged 3 percent growth.
Government economists say the economy needs to grow by a sustained 5.7 percent annual growth rate, which is the rate required to move Botswana from upper middle income to high income status by 2036. However, the economy remains vulnerable to external shocks due to its narrow economic base.
The slowdown in economic growth in 2023, and in other prior years, has been attributed to the weakness in the diamond industry caused by softer demand and falling prices. Diamonds remain the main anchor of the economy, accounting for nearly 90 percent of exports and 30 percent of government revenue.
Prospects of improved economic growth largely hinges on the global diamond industry recovering this year, as well as an expanded 2024/2025 national budget to be delivered in February. With national elections expected in October 2023, President Mokgweetsi Masisi’s administration will likely unleash a huge national budget in campaign mode to sway voters who have become disenfranchised by limited economic opportunities.
According to the Finance ministry’s 2024/2025 Budget Strategy Paper, government plans to spend P88.8 billion against projected revenues of P83.7 billion, resulting in a budget deficit of P5.1 billion – adding to other deficits which could weigh on the economic growth if the government’s spending power is constrained.
For the financial year 2017/2018, the country overspent its budget by P1.9 billion, and worsened in 2018/2019 to a P8.8 billion deficit, and slightly decreased to P7.9 billion deficit in 2019/2020. However, the advent of COVID-19 pushed the deficit to P16.41 billion for the financial year 2020/2021. The budget deficit greatly improved in the 2021/2022 fiscal year, narrowing to an P8 million deficit, while the 2022/2023 closed off with a preliminary budget surplus of P10 million. The budget deficit for the current financial year 2023/2024 – which concludes in March – is projected at P5.7 billion.
While the country grapples with slowed economic growth and constant budget deficits, inflation cooled in 2023, averaging 5.4 percent in the 11 months period, lower than the 12.5 percent in 2022 which was almost twice the annual inflation rate in 2021 that averaged 6.7 percent. The increase in the two years was steep compared to the annual inflation rate of 1.9 percent in 2020.
Bank of Botswana’s Monetary Policy Committee (MPC) expects inflation to remain within the objective range (3-6 percent) in the medium term, averaging 4.9 percent in 2024 and 4.7 percent in 2025. As a result, the MPC slashed the monetary policy rate (MoPR) from 2.65 percent to 2.40 percent in December 2023 – marking a return to accommodative monetary policy after periods of high inflation that forced the central bank to hike interest rates.
The slowdown in consumer prices will ease household budgets which were strained by the rapid climb in inflation, while the lower interest rates will also give consumers room to breath and increase credit to households which are already the biggest consumers of credit.
SUNDAYSTANDARD
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