Overview

Botswana is a development success story. A small, landlocked country of two million people, Botswana was one of the poorest countries in Africa with a per capita gross domestic product (GDP) of about $70 when it gained independence from Britain in 1966. In the years that followed, supported by the discovery of diamonds, Botswana has been one of the fastest growing economies in the world and moved into the ranks of upper-middle income countries. Real GDP showed robust growth of average 5% per annum over the past decade.

The country has a mature democracy, with free and fair elections held regularly and the constitution provides for fundamental rights and freedoms. The Botswana Democratic Party (BDP) has been in power since the first elections were held in 1965. The BDP won the 2014 general election, and Lieutenant- General Seretse Khama Ian Khama was sworn in as President for a second term.

In contrast to Botswana’s impressive economic growth, good governance and prudent macroeconomic and fiscal management, the country faces high levels of poverty and inequality as well as low human development indicators. While poverty rates declined from 50% at independence to just over 19% today, significant pockets of poverty remain, especially in rural areas. Education expenditure is among the highest in the world, at around 9% of GDP and includes the provision of nearly universal and free primary education, however, the sector has not created the skilled workforce Botswana needs to diversify its economy. Unemployment has remained persistent at nearly 17.8%, and as a consequence, income inequality in Botswana is among one of the highest in the world. The HIV/AIDS pandemic has further exacerbated the situation; the HIV/AIDS adult prevalence rate remains at 22%, contributing to education and health outcomes that are below those of countries in the same income group.

Continued uncertainty in global markets and the slow pace of economic recovery in advanced countries continue to act as a drag on Botswana's economic outlook, mainly due to the country's heavy reliance on diamond exports. After two years of strong post-crisis growth, subdued global demand for minerals and metals in 2012 slowed real GDP growth considerably to around 4%. Economic growth strongly bounced back in 2013 (+9.9%) as driven by the diamond sector, but decelerated again in 2014 (+3.2%) to eventually turn negative in 2015 (-0.3%). The slowdown in China combined with falling commodity prices are among the main external factors behind this economic contraction. Continuing electricity and water supply disruptions have also impacted manufacturing, whereas the negative effects of a regional drought adversely effected agriculture. The economy is expected to rebound with projected GDP growth rates of 3.7% and 4.3% respectively in 2016 and 2017, driven mainly by an expected improvement in diamond prices as developed economies stabilize and fiscal stimulus that will propel non-mining activity. Lower fuel and commodity prices, slower credit growth and weakening economic activity will keep CPI inflation at the lower end of the Central Bank’s band of 3-6%.

The fiscal balance swung from a surplus of 3.8% of GDP in 2014 to an estimated deficit of 3.0% of GDP in 2015, as revenues have fallen and the government embarks on its Economic Stimulus Program. Government relies mainly on two volatile revenue streams, mineral revenues (which accounts for almost 40% of total revenue) and South African Customs Union (SACU) customs revenues (27% of total revenue). The recent fall in mining revenue is expected to gradually recover as demand from developed economies stabilizes. The decline in SACU transfers will persist due to the weak economic outlook for South Africa. However, the government has substantial fiscal savings and international reserves, which provides Botswana ample space to gradually adjust expenditures to the SACU shock in the long run, and to provide counter-cyclical stimulus in the near term. This combination of expenditure growth and lower revenue is expected to further widen the fiscal deficit to 3.9% of GDP in 2016, before a gradual return to balance by 2019.

Weak performance across the mining sector will narrow the current account surplus. In 2014, Botswana achieved a current account surplus of 15.7% of GDP. External factors mentioned above adversely affected exports in 2015, and the current account surplus narrowed to 9.3% of GDP, and will continue narrowing further in 2016 on continued weakness in the mining sector before gradual improvement. Foreign reserves remain strong at USD 7.5 billion at end-2015, or about 65% of GDP.

Botswana faces a key policy dilemma of how to grapple with the predicted decline in previously buoyant diamond revenues. Projections of future diamond revenues are uncertain. While diamonds may not be fully exhausted for another generation, output is already well past its peak. While Botswana has made some progress in reducing its dependence on diamonds in the past 20 years, the level of economic diversification needed to offset diminishing mineral revenues will remains a challenge. 

Last Updated: Apr 12, 2016

A Country Partnership Framework (CPF) for the period of FY16-FY20 was presented to the World Bank Group’s (WBG) Board of Executive Directors in November 2015. The CPF was informed by the Systematic Country Diagnostics endorsed in March 2015. The CPF was developed in consultation with the Botswana government and aims at supporting the country in addressing national priorities of eradicating abject poverty, reducing inequality, and promoting job creation.

As of March 2016, the WBG’s portfolio had one active project:

In addition to the lending program, the WBG is undertaking analytical work to better understand the apparent contradiction between the strong track record in governance, macro-fiscal management and growth vis-a-vis high levels of poverty, inequality and human development indicators, and to continue identifying key bottlenecks to economic diversification. The WBG supported the government’s economic diversification and competitiveness agenda through a reimbursable advisory services (RAS) project that was completed in February 2016. The first assignment under the program covered five pillars jointly identified by government and the WBG, including doing business, industrial and trade policies, infrastructure, access to finance, and skills development. The second assignment responded to government’s request for assistance with developing the long-term vision for Botswana, establishing national performance monitoring and evaluation framework, introducing continuous multi topic household survey, and implementing the supporting capacity building of Public Procurement and Asset Disposal Board.

Last Updated: Apr 12, 2016

The World Bank Group (WBG) arranged a partial credit guarantee under the Morupule B Electricity Generation and Transmission Project to extend the maturity of an $825 million commercial loan to Botswana from 15 years to 20 years. The project closed on June 30, 2014 as scheduled with the operational status of the plant as being fully taken over by Botswana Power Corporation and operating with all units. The plant was engaged at its full design capacity of 600MW for the first time on June 17, 2014. Nevertheless, concerns regarding plant’s performance and reliability remain. Also, the Bank is supporting analytical work for development of low-carbon energy alternatives such as coal bed methane and renewable energy, including concentrated solar power.

The WBG brought global and regional experience to increase the efficiency of the national HIV/AIDS program by supporting the government to transition from an “emergency” response to a broader, more strategic and sustainable approach. The Botswana National HIV/AIDS Prevention Project closed in March, 2015. The WBG was able to leverage a contribution of $20 million from the European Commission using an innovative, performance-based “buy-down” structure to improve the performance of the National AIDS Coordinating Agency.

The WBG assisted with mitigating human-wildlife conflict through proactive prevention interventions in selected rural communities in Northern Botswana and supported employment choices to local people in wildlife-based tourism to benefit directly from the presence of wildlife. The Northern Botswana Human Wildlife Coexistence Project, financed by the grant from Global Environment Facility grant closed in January, 2016.

Last Updated: Apr 12, 2016

Botswana joined the International Finance Corporation (IFC) in 1979 and the Multilateral Investment Guarantee Agency (MIGA) in 1990. The International Finance Corporation (IFC) supports the competitiveness agenda through selective investment technical assistance interventions.

The MIGA will also support the country’s competitiveness agenda through the provision of political risk insurance, if and when it is needed by foreign investors active in the country.

Through the “buy-down” arrangement of the HIV/AIDS project, the European Commission has emerged as the Bank’s main partner with a substantive portfolio targeting a pressing development challenge of slowing the epidemic. 

Last Updated: Apr 12, 2016


LENDING

Botswana: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments