Botswana Must Diversify Its Economy, Warns IMF

by Robert Lee, Tax-News.com, London

04 August 2004

In its annual review of Botswana’s economy, the International Monetary Fund has praised the country’s evolution from one of the world’s poorest nations to one of the best performing economies in Africa.

However, Botswana still faces major challenges according to the IMF, namely the development of an appropriate social safety net and the diversification of the economy to support economic growth, which is expected to decelerate relative to the high rates experienced over the past 35 years.

It was noted by the IMF that the country has already begun to take steps towards economic diversification with the launch in April 2003 of the Ninth National Development Plan for the period 2003/2004 through to 2008/2009.

This focuses on alternatives to the production and export of minerals, and addresses unemployment and other social issues.

During 2003/04, productivity gains in the diamond-sorting process led to higher-than-expected real growth of 5.4%, as diamond production surpassed the earlier expectation of 28 million carats to reach 30 million carats.

Meanwhile, non-mining output growth is projected to maintain a 5% level for the second year in a row.

On the tax front, the IMF observed that some revenue items, notably value-added tax (VAT), are expected to show a sizable shortfall compared with the budget, reflecting in part the weak tax administration.

Nevertheless, the IMF directors noted that Botswana's sound macroeconomic policies have contributed to sustained growth and single-digit inflation, which, together with strong institutions and prudent natural resource management, have helped place Botswana among the best-performing economies in Africa over the last three decades.

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