Botswana is located at the center of Southern Africa, positioned between South Africa, Namibia, Zambia, and Zimbabwe. One of the world’s poorest countries at independence in 1966, it rapidly became one of the world’s development success stories. Significant mineral (diamond) wealth, good governance, prudent economic management, and a relatively small population of about 2.4 million (2021), have made it an upper middle-income country with an agenda of becoming a high-income country by 2036.
Botswana’s stable political environment includes a multi-party democratic tradition, with general elections held every five years. The ruling Botswana Democratic Party (BDP) has been in power since 1966. In October 2019, Botswana held its 11th general elections, with President Mokgweetsi Eric Masisi assuming the presidency. Peggy Serame was appointed Minister of Finance and Economic Development in April 2021.
Botswana’s macroeconomic policy framework is anchored in prudent macroeconomic policies and good governance, but despite having maintained positive political and economic levels over the years, challenges remain. Botswana's reliance on diamonds and a public sector-driven model makes the economy vulnerable to external shocks, as diamonds contribute over 80%of total exports and are a major source of fiscal revenues. This vulnerability was evident during the COVID-19 pandemic when the economy contracted by 8.7% in 2020 and fiscal pressures rose.
Inequality in Botswana remains among the highest in the world, job creation lags, and unemployment is structurally high at 26% at the end of 2021. Economic growth rebounded to an estimated 12.1% in 2021. As the base effects from the pandemic shock fade, the World Bank projects moderate in 2022 of about 4.1%, driven by improvements in the global demand for diamonds, the easing of restrictions on mobility, and an expansionary fiscal stance, all supported by extensive rollout of COVID-19 vaccines.
As inflationary pressures mount, the Bank of Botswana has tightened monetary policy, raising the newly introduced Monetary Policy Rate three times since the beginning of 2022. The higher fiscal revenues driven by diamond exports are helping to replenish the Pula Fund. The fiscal deficit is set to increase, with higher government spending to cushion households against soaring higher inflation. Structural reforms, needed to boost competitiveness for more and better jobs, remain essential to tackling the unemployment rate of 26%.
Botswana continues to face structural challenges, slow growth, and shock from the COVID-19 pandemic. The recent Botswana Multi-Topic Survey: Labour Force Module Report indicates the unemployment rate rose to 26% in 2021, with youth unemployment posing a critical challenge. Addressing this and other challenges will require improving the quality of infrastructure (water and electricity), essential basic services (education, health, and social safety nets), and accelerating reforms to the business environment and providing effective support for entrepreneurship and private-sector job creation. The World Bank’s Human Capital Index (HCI) scores Botswana at 0.42. The purpose of the HCI is to bring attention and action to improving the level and quality of government investments in child health, nutrition, and education, given the strong links between them and labor productivity and economic competitiveness. Education expenditure in Botswana is among the highest in the world, and includes the provision of nearly universal free primary education, but it has not created a skilled workforce.
Last Updated: Oct 07, 2022