By Botswana’s economic growth is expected to slowdown further this year as global demand for rough diamonds decreases sharply. Mining activity in the country has also not been performing well further contributing to the slowdown.
According to the International Monetary Fund (IMF) Executive Board’s assessment on Botswana’s economy, the African country has been experiencing an economic slowdown since 2022 mainly due to the global diamonds market contraction.
Botswana’s economic growth decelerated from 5.5 percent in 2022 to 2.7 percent in 2023, which below its long-run potential growth of 4 percent.
According to the IMF, a sharp decline in diamond trading and mining activities was the main contributor to the slowdown, as global demand for rough diamonds decreased. Inflation has remained below the ceiling of the central bank’s medium-term objective range since July 2023.
Despite lower diamond exports, FX reserves increased in 2023 supported by higher customs union receipts. The financial sector is broadly sound, stable, and resilient.
The IMF says Botswana’s economy is expected to decelerate further this year, with growth projected at one percent. The continued slowdown is mainly due to a fall in diamond production, partly offset by construction projects financed by the fiscal expansion.
Growth is forecast to rebound; averaging 5 percent over the next two years due to higher prices and quantities of diamonds produced. Inflation is projected to remain within the central bank’s objective range of 3–6 percent.
“The fiscal deficit is projected to widen further to 6 percent of GDP in FY2024, reflecting a further decline in mineral revenues and higher capital expenditure. The government plans a substantial fiscal adjustment in the following two years to reach a fiscal surplus. The external position should soften over the medium term (with FX reserves decreasing to 5 months of imports) due to weak growth in customs revenues and higher government foreign debt repayments.
Risks to the outlook remain elevated due to the emergence of cheaper lab-grown diamonds, and uncertainty over the recovery of major export markets,” said the IMF’s Executive Board.
