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 slightly more than two million, have made it an upper middle-income country with a transformation agenda of becoming a high-income country by 2036.
Political Context
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 His Excellency President Dr. Mokgweetsi Eric Masisi assuming the presidency. Honorable Peggy Serame was appointed Minister of Finance and Economic Development in April 2021.
Economic Overview
Botswana’s macroeconomic policy framework is anchored on prudent macroeconomic policies and good governance. Despite having maintained a level of political and economic transformation over the years, challenges remain. Economic transformation has been slow, partly because of sluggish economic diversification and declining revenue from minerals, particularly diamonds. The emergence of the COVID-19 pandemic in 2020 further exposed existing structural rigidities. The economy’s dependence on a single commodity, diamonds, makes it vulnerable to external shocks and pre-existing challenges associated with mineral-led growth. Inequality remains among the highest in the world, job creation lags and unemployment is structurally high, at 26 percent by the end of 2021 from 24.5 percent in 2020.
Economic growth rebounded to an estimated 12.1 percent in 2021 and, as the base effects from the pandemic shock fade, the World Bank projects growth to moderate in 2022 to about 4.1 percent, driven by improvements in the global demand for diamonds, the easing of restrictions on mobility, and the expansionary fiscal stance supported by the extensive rollout of COVID-19 vaccines. The Authorities have maintained an accommodative monetary policy and continue to monitor second-round effects of supply shocks and administered price increases amidst rising inflation.
Persistent deficits have elevated public debt, estimated at about 25.5 percent in 2022, whilst pandemic induced spending continues to put pressure on the fiscal budget with overall fiscal deficits set to wane into the medium term. To create fiscal space and lower the deficit, Government introduced structural measures anchored on revenue mobilization, managing fiscal expenditure and building back buffers.
Social Context
Living conditions have improved for the Botswana people, and poverty has fallen significantly. The share of the population living on less than $1.90 a day at the 2011 Purchasing Power Parity declined steadily from 29.8% to 18.2% between 2002–03 and 2009–10, and to 16.1% in 2015-16. This rapid poverty reduction can be attributed mainly to a combination of increasing agricultural incomes, including subsidies, and demographic changes. Progress in reducing poverty has been accompanied by improvements in shared prosperity. The growth rate of consumption per capita between 2009–10 and 2015-16 for the bottom 40 percentile of the population was 0.42% annually, higher than the growth rate of the top 60 percentile. However, Botswana's performance was only in the middle of the worldwide shared-prosperity distribution.
Inequality has fallen as well, albeit still high. Between 2010 and 2015, inequality, measured by the Gini index, fell from 60.5% to 53.3%. Among factors associated with Botswana's declining income inequality, the key one is regional convergence due to fast growth in rural areas and demographic changes. However, Botswana remains one of the world's most unequal countries.
The recent Botswana Multi-Topic Survey: Labour Force Module Report indicates that the unemployment rate has gone up by 3.1 percentage points from 17.6% to 20.7% with youth unemployment posing a critical challenge. Addressing these challenges will require improving the quality of infrastructure (water and electricity), essential basic services (education, health, and social safety nets), as well as accelerating reforms to the business environment and effective support for entrepreneurship.
The World Bank’s Human Capital Index (HCI) scores Botswana at 0.42. The purpose of the HCI is to promote attention and action to improving the level and quality of government investments in child health, nutrition, and education given their strong links to labor productivity and economic competitiveness. Botswana’s HCI score suggests that a Motswana child born today will only be 42% as productive when she grows up as she could have been if she had enjoyed complete education and health. Education expenditure is among the highest in the world and includes the provision of nearly universal free primary education but has not created a skilled workforce.
Last Updated: Apr 07, 2022
