As of end-2021, Botswana had recovered to its pre-crisis output level thanks to a strong rebound in demand for diamonds, a successful vaccination campaign, and policy support. Fiscal and current account deficits both narrowed sharply, and foreign reserves stabilized but buffers are yet to be fully rebuilt. Inflation exceeded the central bank’s medium-term objective range, while unemployment rose close to record highs. Growth in 2022 and beyond is expected to be around potential, while fiscal and external positions are projected to strengthen with more favorable terms of trade and strong fiscal consolidation. Risks to the outlook are associated with the war in Ukraine, the pandemic, and the implementation of fiscal consolidation and economic diversification plans.
A technical assistance (TA) mission was conducted by the International Monetary Fund’s (IMF) Regional Technical Assistance Center for Southern Africa (AFS)1 during November 22–26, 2021 to continue assisting Statistics Botswana (SB) with developing the producer price index (PPI). Due to ongoing COVID-19 related travel restrictions, this mission was conducted remotely using Microsoft Teams, WhatsApp, and email. Previous missions to assist with developing price indexes were held in February 2019 and October 2020.
A remote technical assistance (TA) mission was conducted by IMF’s Regional Technical Assistance Center for Southern Africa (AFS)1 during April 12–16, 2021 to assist Statistics Botswana (SB) in improving the quality of the national accounts statistics. Reliable national accounts are essential for informed economic policymaking by the authorities. It also provides the private sector, foreign investors, rating agencies, donors and the public in general with important inputs in their decision-making, while informing economic analysis and IMF surveillance. The System of National Accounts, 2008 (2008 SNA) recommends that the national accounts be rebased every five years. Rebasing requires comprehensive surveys and ideally, supply and use tables (SUTs) to support coherent checking of data.
Botswana entered the COVID-19 crisis with larger buffers than most countries, but significantly less than in the past. The country was contending with structural challenges, persistent negative external shocks and delays in adjustment that had already caused a significant weakening of international reserves coverage and the fiscal position amid high unemployment. The pandemic exacerbated these challenges causing a sharp GDP contraction, among the strongest in SSA and a widening in the current account deficit. Foreign exchange reserves dropped further, though still remaining well above adequate levels. The fiscal deficit widened significantly as the government sought to counter the economic impact of the COVID-19 crisis, and implemented a sizeable public wage increase agreed in 2019. The deficit was financed partially by drawing down on the Government Investment Account.
Mario Pessoa, Andrew Okello, Artur Swistak, Muyangwa Muyangwa, Virginia Alonso-Albarran, and Vincent de Paul Koukpaizan
The value-added tax (VAT) has the potential to generate significant government revenue. Despite its intrinsic self-enforcement capacity, many tax administrations find it challenging to refund excess input credits, which is critical to a well-functioning VAT system. Improperly functioning VAT refund practices can have profound implications for fiscal policy and management, including inaccurate deficit measurement, spending overruns, poor budget credibility, impaired treasury operations, and arrears accumulation.This note addresses the following issues: (1) What are VAT refunds and why should they be managed properly? (2) What practices should be put in place (in tax policy, tax administration, budget and treasury management, debt, and fiscal statistics) to help manage key aspects of VAT refunds? For a refund mechanism to be credible, the tax administration must ensure that it is equipped with the strategies, processes, and abilities needed to identify VAT refund fraud. It must also be prepared to act quickly to combat such fraud/schemes.
Whereas most of the literature related to the so-called “resource curse” tends to emphasize on institutional factors and public policies, in this research we focus on the role of the financial sector, which has been surprisingly overlooked. We find that countries that have financial systems with more depth, as well as those that actively manage their central banks’ balance sheets experience less exchange-rate appreciation than countries that do not. We analyze the relationship between these two findings and suggest that they appear to follow separate mechanisms.