Country Report Botswana March 2011

Highlights

Outlook for 2011-12

  • The ruling Botswana Democratic Party (BDP) is expected to maintain its dominance of the political scene despite facing a threat from a breakaway party, the Botswana Movement for Democracy (BMD), and talk of opposition unity.
  • No elections are scheduled to take place over the forecast period and the president, Ian Khama, is expected to remain in office.
  • The Economist Intelligence Unit forecasts that the fiscal deficit will narrow to 6.3% of GDP in fiscal year 2011/12 (April-March) and 1.9% of GDP in 2012/13, reflecting recovering revenue and reduced public capital expenditure.
  • Real GDP is forecast to grow by 6.3% in 2011 and 6% in 2012 as external demand continues to recover, after growing by an estimated 7.5% in 2010.
  • The currency is expected to depreciate over the forecast period, in line with the rand, to an average of P6.98:US$1 in 2011 and P7.57:US$1 in 2012.
  • The weakening currency and recovering global demand will boost exports, returning the current account to balance in 2011 and to a surplus of 3.1% of GDP in 2012.

Monthly review

  • To avert further internal discord in the BDP, Mr Khama has suggested that the election for the central committee at the party congress, scheduled for July, should be suspended in favour of a "compromise list" of candidates.
  • Tensions within the opposition BMD have built up ahead of the party congress due in March, and the lack of a clear policy platform has been highlighted by disagreement between BMD MPs during parliamentary debate.
  • Opposition parties continued to discuss co-operation, but the commitment of the third-largest opposition party, the Botswana National Front (BNF), remains uncertain.
  • The 2011 budget was presented to parliament on February 7th by the minister of finance and development planning, Kenneth Matambo. The government remains rhetorically committed to balancing the budget by 2012/13.
  • Mr Matambo admitted that risks to the budget remain. For example, public-sector unions have threatened strike action for higher pay because their wages have been formally frozen for three consecutive years.
  • Botswana's external debt is approaching the statutory limit, and the government has extended the domestic bond issuance programme to P15bn (US$2bn), from P5bn.
  • Reflecting the recovery of international demand for diamonds, Debswana has announced plans to increase production by 20% in 2011.

Outlook for 2011-12: Political stability

Party politics will continue to dominate the political picture over the forecast period. The largest party in Botswana politics, the Botswana Democratic Party (BDP), which has governed the country since it gained independence in 1966, is facing a challenge from a splinter party that broke away in April 2010. The new party, the Botswana Movement for Democracy (BMD), benefited initially from a series of defections from the BDP, as well as support from independents. However, its momentum has slowed, and there is a growing perception (including within its own ranks) that the BMD's relentless attacks on the president, Ian Khama, are coming at the expense of promoting its own policies. The party had been hoping for a boost from its inaugural national congress, set for March, although it appears increasingly likely that the congress will expose personal rivalries among the leadership.

At the same time, the prospects for unity in the BDP have improved now that Mr Khama appears willing to be more accommodating towards supporters of Barataphathi (a faction within the BDP, many of whose members left to form the BMD) who have remained loyal to the party. Mr Khama has recently undertaken a limited cabinet reshuffle, and the appointment of Ponatshego Kedikilwe, formerly a leading member of Barataphathi, as acting vice-president will bolster party unity. However the president's preference for a "compromise list" to head off a potentially divisive election for the BDP central committee in July indicates the extent of his concern that factionalism in the party could erupt again.

Outlook for 2011-12: Election watch

The next general election is scheduled to take place in October 2014. As the BDP has comfortably retained its parliamentary majority in the face of the threat from the BMD, there is now little chance that the government will call a snap election. Opposition parties have agreed on the need, in principle, to put aside past differences and co-operate in the lead-up to the next election, and each of the main parties has appointed a team to negotiate an electoral pact. However, continuing frictions between the opposition parties-most recently over the selection of joint candidates for local council by-elections-indicate how difficult it will be for the opposition to co-operate in practice. In particular, some party activists in the Botswana National Front remain suspicious and, in some cases, openly hostile to the idea of working with the other parties, which they see as little better than the BDP. At the same time, frictions between the BMD and the Botswana Congress Party could emerge as they compete for the centre ground of Botswana politics and practical matters of co-operation-notably the distribution of seats between the parties-come to the fore.

Outlook for 2011-12: International relations

Botswana will maintain generally good international relations over the forecast period, benefiting from its reputation for political and economic stability. Botswana severed diplomatic relations with Libya in late February, and the foreign minister, Phandu Skelemani, questioned the African Union's significance as it remained silent during the political turmoil in North Africa. However, the government's continued willingness to speak out against human rights abuses may continue to cause friction with other countries in the region.

Outlook for 2011-12: Policy trends

The government will continue to pursue largely prudent economic policies, although its ability to maintain macroeconomic stability and fiscal discipline will be tested by the lingering effects of the global recession, particularly the large fiscal deficit. Recent reports from the World Bank and, in early 2011, the IMF have also called for stringent control of public expenditure to ensure long-term budget sustainability. However, the capacity to contain spending will be tested by the increasing militancy of the public sector unions, which are currently threatening to strike if their demands for a significant salary increase are not met. Moreover, despite the emphasis on fiscal consolidation in the recent budget speech, there is little sign of any significant reduction in spending on a range of recently introduced social programmes at a time when the BDP's electoral dominance is being challenged. An economic diversification drive, also launched recently, stresses the government's intention to use its own purchasing power to develop and support local businesses, while the cabinet will soon consider a draft policy on citizen economic empowerment that, depending on how the issue is handled, could deter foreign investment.

Outlook for 2011-12: Fiscal policy

The budget speech, presented to parliament in early February, demonstrated that the government remains committed to eliminating the budget deficit by fiscal year 2012/13 (April-March). However, unless revenue grows more rapidly than projected, deficit reduction by the end of the forecast period will require real spending cuts that may be implausibly high, despite the emphasis in the budget on doing more with less. Botswana's history of sound macroeconomic management should lend some credibility to the government's fiscal programme, and this will be buttressed by recent initiatives to improve the transparency of the budgeting process. How the government handles wage negotiations with civil servants will be closely monitored, as will the implementation of plans to outsource more non-core activities. Overall, the budget for 2011/12 projects total spending of P41.3bn (US$5.8bn) in 2011/12, falling sharply to P36.8bn in 2012/13, with development spending bearing the brunt of the cuts.

Revenue from value-added tax (VAT) is expected to continue to grow rapidly, reaching 12.5% in 2011/12, supported by improved collection procedures, and mineral-related receipts will continue to recover strongly as diamond production accelerates further over the next two years. However, non-mineral income tax will remain muted, growing by 3.3% in 2011/12. Despite falling sharply in 2010/11 to P6bn (which included a P1bn windfall payment) from P7.9bn in 2009/10, revenue from the Southern African Customs Union (SACU) is budgeted to rise by 41% to P8.5bn in 2011/12. The Economist Intelligence Unit forecasts that SACU revenue will rise by only 28% in 2011/12, and will then fall by 5% in 2012/13 as a new revenue-sharing formula takes effect.

Overall, we forecast that the deficit will fall to 6.3% of GDP in 2011/12 as the impact of new revenue efforts is fully realised and the development budget is reduced. Although the government is aiming to balance the budget by 2012/13, we forecast that it will remain in deficit, at 1.9% of GDP. Parliament has approved an additional P10bn of government borrowing, which will be more than sufficient to fund the projected deficit over the outlook period; however, the government is also expected to continue drawing on deposits at the Bank of Botswana (BoB, the central bank). Significant additional foreign borrowing is unlikely, as the government is expected soon to reach the statutory maximum level of 20% of GDP.

Outlook for 2011-12: Monetary policy

The BoB aims to bring inflation within its medium-term target range, currently set at 3-6%, although it does take account of the need to support domestic demand. Inflationary pressure had been muted in the third quarter of 2010 but the consumer price index has risen for two successive months and risks of further increases have also strengthened, including the unresolved negotiations over civil service salaries. This may pose a problem of policy credibility for the central bank, which had surprisingly cut the benchmark bank rate from 10% to 9.5% at the December meeting of its monetary policy committee, expressing confidence in its projection that inflation would come back within the target range around the middle of 2011. Some easing of headline inflation can be expected in the coming months as the impact of the increase in VAT in April 2010 falls away but the BoB has revised its projection for inflation to return within the target range during the second quarter of 2012, and we forecast that interest rates will rise by 50 basis points in both 2011 and 2012.

Outlook for 2011-12: International assumptions

International assumptions summary
(% unless otherwise indicated)
 2009201020112012
Real GDP growth
World-0.84.84.14.1
US-2.62.92.72.2
South Africa-1.72.83.74.6
Exchange rates
¥:US$93.787.982.081.0
US$:€1.3931.3261.2651.200
Rand:US$8.427.327.648.37
Financial indicators
US$ 3-month commercial paper rate0.260.260.340.70
€ 3-month interbank rate1.230.841.031.88
Commodity prices
Oil (Brent; US$/b)61.979.690.082.3
Nickel (US$/lb)6.69.910.49.3
Copper (US cents/lb)233.6344.5447.5465.0
Industrial raw materials (% change in US$ terms)-25.644.922.3-8.8
Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

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Outlook for 2011-12: Economic growth

Global GDP growth of 4.1% in both 2011 and 2012 will raise demand for Botswana's exports over the forecast period. Prices are expected to remain buoyant and production by Botswana mines will steadily build up to full capacity by 2012. A small new diamond mine has recently started production and others are expected to follow, including a major new investment in the Central Kalahari Game Reserve. A new copper development is under way, with more expected to follow, and investment in the country's first uranium mines is also expected. Coal-mining projects are increasingly attracting investor interest, particularly from India, as world coal prices continue to rise, and the development of associated infrastructure, including rail links, is expected to start during 2012. However, growth from mining sources will be partly offset by the slowdown in government capital spending and from the erosion of civil servants' purchasing power through continued wage freezes.

The BoB has reported that local businesses are increasingly positive about business conditions and expect manufacturing to recover more of the ground that it lost in 2009, as global demand remains strong. We forecast GDP growth of 6.3% in 2011 and 6% in 2012 as the effects of the recovery fade. The key risk to the growth outlook for Botswana is falling international demand in the diamond sector, which will be crucial for financing public and private consumption and investment. Fuel shortages towards the end of 2010 and reduced electricity supply from Eskom, the South African power utility, from January also underline continuing supply-side vulnerabilities; the diversification of energy sources will remain a priority and may test the government's commitment to reducing capital spending.

Outlook for 2011-12: Inflation

Year-on-year consumer price inflation was 7.9% in January 2011, up from 7.4% in December. Although this was largely explained by unusually large increases in the costs of education (levies at government schools were adjusted for the first time in several years), international prices for commodities, including food and oil, will also contribute to inflationary pressure; petrol prices were increased in early February. Although domestic inflationary pressure will ease as the impact of the VAT increase falls away and government expenditure is reduced, we expect annual inflation to remain outside the target range until the middle of 2012, averaging 7.5% in 2011 and 6.3% in 2012.

Outlook for 2011-12: Exchange rates

The pula's value is determined by a basket of currencies dominated by the South African rand, through a crawling-peg mechanism that makes small adjustments based on expected inflation differentials with trading partners. Although the rate of crawl is not made public, it is currently set on a modest downward path. The average exchange rate against the US dollar was stronger in 2010 owing to the appreciation of the South African rand. However, the rand is expected to depreciate to average R8.37:US$1 in 2012, from R7.32:US$1 in 2010. As a result, we expect the pula to depreciate to an average of P6.98:US$1 in 2011 and P7.57:US$1 in 2012.

Outlook for 2011-12: External sector

International demand for minerals will grow over the forecast period, and the depreciation of the pula will stimulate exports and limit the growth of imports, supporting the current-account position. Capital imports will grow over the forecast period, suppressed by the ongoing fiscal austerity measures but supported by infrastructure development and mining projects.

Although the new projections in the 2011/12 budget for payments from SACU are higher than expected, the revenue-sharing formula for the customs union is being renegotiated, and the trend is likely to be downward in the medium term. However, remittances are expected to increase with global growth and as more Batswana look for employment outside the country. Botswana's reserves and the majority of its pension funds are invested on international financial markets, where continued volatility poses a significant risk to the country's income account. In view of these trends (and in the light of ongoing revisions to historical balance-of-payments data by the BoB), we forecast that the current account will balance in 2011 and return to a surplus of 3.1% of GDP in 2012.

Outlook for 2011-12: Forecast summary

Forecast summary
(% unless otherwise indicated)
 2009a2010a2011b2012b
Real GDP growth-5.47.56.36.0
Industrial production growth-19.918.98.26.6
Gross fixed investment growth4.913.07.68.0
Consumer price inflation (av)8.1c7.0c7.56.3
Consumer price inflation (end-period)5.8c7.4c7.76.0
Commercial bank prime rate (av)13.8c10.811.311.8
Government balance (% of GDP)d-10.3-9.7-6.3-1.9
Exports of goods fob (US$ m)3,3374,6905,2865,682
Imports of goods fob (US$ m)-4,091-4,826-5,216-5,319
Current-account balance (US$ m)-526-3411540
Current-account balance (% of GDP)-4.3-2.30.03.1
External debt (year-end; US$ m)1,6802,5042,6042,570
Exchange rate P:US$ (av)7.16c6.79c6.987.57
Exchange rate P:¥100 (av)7.64c7.73c8.519.35
Exchange rate P:€ (end-period)9.56c8.69c8.879.26
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual. d Fiscal years April-March.

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The political scene: There are plans to avert internal BDP elections

The president, Ian Khama, told a political rally in Molepolole in mid-February that there would be no elections to select members of the central committee of the ruling Botswana Democratic Party (BDP) at the party congress, due in July. Instead, he is promoting the idea of a "compromise list" of appointees drawn from across the party. The objective is clearly to avoid the bitter confrontations that occurred at the previous elections in 2009, when polarisation along factional lines ultimately led to the formation of the Botswana Movement for Democracy (BMD; September 2009, The political scene). To demonstrate his commitment to party unity, Mr Khama has asked Daniel Kwelagobe-the party chairman, whose refusal to leave the party is widely credited with preventing a more serious split-to supervise the selection. Nonetheless, voices of dissent, albeit largely anonymous, have been heard, suggesting that the party's long-term interest would be better served by allowing greater internal democracy.

The political scene: The cabinet reshuffle is limited--so far

After weeks of media speculation, changes by the president, Ian Khama, to his cabinet fell far short of expectations, as most ministers retained their positions (February 2011, The political scene). This prompted his critics to accuse him of dithering-a shift from their normal line of criticism, that he is impetuous. A more serious suggestion was that he had been thwarted by ministers' refusal to heed a warning that they should choose between their business interests and involvement in the cabinet, although a claim by Mr Khama that the media were trying to create controversy within the ruling Botswana Democratic Party (BDP) is also plausible.

Although limited, the changes announced at the time of writing were nonetheless controversial. The resignation from parliament of Lesego Motsumi in order to take up a diplomatic posting had been widely rumoured for weeks, and her replacement as minister of presidential affairs and public administration by Mokgweetsi Masisi was generally welcomed as a reward for the latter's competent performance as her deputy. Similarly, Ms Motsumi's replacement in parliament, where she had been a "specially elected" (ie chosen by other members) member of parliament (MP), by Gloria Somolokae, a respected academic, was seen as a shrewd move that added to the quality of women's representation in parliament while not fanning factional flames within the BDP. However, the decision to appoint Patrick Masimolole, an MP with few obvious talents and a reputation for aggressive outbursts in parliament, as Mr Masisi's deputy was widely seen as the quid pro quo for his agreeing to rejoin the BDP a few weeks after defecting to the Botswana Movement for Democracy (BMD; September 2010, The political scene). Ms Motsumi had also been acting minister of justice, defence and security, and this post has now been filled by Edwin Batshu, who, despite his distinguished record of public service as a former commissioner of police, has done little of note since entering parliament in 2009. However, this is also only on an acting basis, fuelling speculation that Mr Batshu is a temporary appointment while Mr Khama awaits the early return to cabinet of Dikgakgamatso Seretse, who stepped down in August 2010 to face charges of corruption (September 2010, The political scene).

PHK is appointed acting vice-president

Ponatshego Kedikilwe (or "PHK", as he is widely known), the minister of minerals, energy and water resources, has been appointed acting vice-president after Mompati Merafhe was given long-term sick leave following surgery. Although unplanned, this move is likely to suit Mr Khama. There had been reports that he was planning to replace Mr Merafhe, who is loathed not only by the opposition but also by a large section of the BDP and, well into his seventies, is approaching the end of his political career. There has already been lobbying for the elevation of Mr Kedikilwe as a way of further strengthening unity in the party. At the same time, an acting appointment means that there is no presumption of a permanent promotion for Mr Khama's sometimes bitter rival in cabinet, giving the president more time to prepare the way for his preferred long-term successor.

The political scene: Tensions in the BMD build up ahead of the party congress

In the initial euphoria following its formation, the inaugural congress of the BMD was seen as the next stage in the inexorable rise of the new party. However, after the event was initially postponed from November 2010 to March, the party appears to be approaching it with trepidation, amid growing fears that unity among the party's founding leaders will transform into open rivalries as they battle for key positions. The principal concern is that Sidney Pilane, the party spokesman, will challenge Gomolemo Motswaledi for the party presidency-although he has little chance of winning, Mr Pilane is apparently concerned that a cult of personality is developing around Mr Motswaledi. Other contests between the six BMD members of parliament (MPs) are also rumoured, and the party has denied to the press that it has plans to postpone the congress again. The party's lack of a coherent policy platform (its main unifying factor so far has been a shared dislike of Mr Khama) has also been underlined by open disagreement between its MPs in their contributions to the parliamentary debate on the 2011 budget speech.

The political scene: The BNF's commitment to co-operation is uncertain

Although the Botswana National Front (BNF) has recently announced its team to negotiate an electoral pact with the Botswana Congress Party (BCP) and the BMD (February 2011, The political scene), it remains embroiled in internal wrangling. The BNF youth league has angrily denounced the inclusion of Kirsten Marobela in the team, reopening an unresolved rift over the status of those who were expelled from the party in 2009 because of their opposition to Otsweletse Moupo, the party leader at that time. The youth league even warned of large-scale defections to other parties. Moreover, a failed attempt by a party activist to register as a candidate in a local council by-election where the BNF leadership had agreed to support the BCP indicates that hostility to co-operation remains. This is especially the case at grass-roots level, where bitterness towards the BCP-which split from the BNF in 1998-remains strong and where the BMD is regarded as the BDP without Mr Khama.

The response to the recent Court of Appeal decision to allow Bushmen living in the Central Kalahari Game Reserve (CKGR; February 2011, The political scene) to access water highlights the personality differences that will have to be overcome within the opposition. The BNF in particular was jubilant over the decision, given that its president, Duma Boko, had represented the Bushmen in the earlier High Court case that, in 2007, overturned the government's policy of relocating residents from the reserve (February 2007, The political scene). However, the BMD was quiet on the decision, as some of its members had, during their time in the BDP, actively supported the relocation policy-most notably Mr Pilane, who represented the government in the same case.

Economic policy: The 2011 budget is presented to parliament

The minister of finance and development planning, Kenneth Matambo, presented the budget for fiscal year 2011/12 (April-March) on February 7th. Opposition parties were quick to criticise the speech as "more of the same", but there were significant differences in both style and substance from previous years. Notably, the 2011 budget speech was much shorter, focusing on key themes and accompanied by a wider range of documents, as well as an invitation for feedback through the ministry's website. This is the result of ongoing efforts to improve transparency and accountability in the budgeting process, which, in turn, is part of a programme of reforms to financial management in the public sector that is being supported by the World Bank, among other partners. Related to this, Mr Matambo indicated that a new Public Finance Management Bill, intended to replace the existing Finance and Audit Act, would be tabled before parliament shortly.

Government finances
(P bn, fiscal years Apr-Mar)
 2008/92009/102010/112011/12% change
 OutturnOutturnEstimatedBudget2011/12 on 2010/11
Revenue & grants30.530.030.334.112.6
 Tax revenue20.520.019.523.319.6
  Mineral tax3.52.42.73.320.5
  SACU customs pool7.87.96.08.540.9
  Non-mineral income tax4.65.65.86.03.3
  VAT4.43.94.75.312.5
  Other taxes0.30.30.30.313.2
 Non-tax revenue9.49.210.310.51.9
  Mineral royalties & dividends6.76.76.67.920.0
  Sale of property0.10.11.10.1-93.2
  Other non-tax revenue2.52.42.62.5-2.5
 Grants0.60.80.50.3-40.4
Expenditure & net lending35.239.540.541.01.3
 Recurrent23.925.727.230.311.5
  Personal emoluments8.79.311.911.6-2.6
  Other charges14.916.114.818.222.8
  Public debt interest0.30.40.50.611.4
 Development11.513.013.310.8-19.1
 Net lending-0.20.80.0-0.1248.1
Balance-4.7-9.5-10.2-6.9-32.2
Source: Ministry of Finance and Development Planning.

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Economic policy: Mr Matambo still forecasts a balanced budget in 2012/13

According to the 2011/12 budget, plans are on track to eliminate the budget deficit-which the government currently estimates to be 10% of GDP-by 2012/13, while also aligning spending closer to 30% of GDP, which both the IMF and the World Bank have suggested is necessary to underpin long-term budget sustainability. However, this would necessitate significant expenditure cuts in real terms: assuming 7% inflation, forecast expenditure in 2012/13 would have to fall by 16% in real terms. According to the budget, this will be achieved mainly through scaling down the development programme as current capital investments are completed. However, it remains to be seen whether other crucial capital investments, such as additional power generation capacity to plug the country's forecast supply shortfall in 2016, can be delayed or successfully moved off-budget through public-private partnerships. In order to erode the value of recurrent expenditure in real terms, the Ministry of Finance and Development Planning has frozen various recurrent budget lines, such as travel, hoping that departments will prioritise value-added activities for themselves. However, the government will struggle to contain recurrent expenditure in the face of demands for higher wages from the civil service and the need to increase spending on infrastructure maintenance. The forecast return to a balanced budget in 2012/13 also rests crucially on revenue assumptions. The formula for distributing customs revenue in the Southern African Customs Union (SACU) is currently being reviewed (February 2011, Economic policy). Although the formula is unlikely to change during 2011/12, as the smaller countries in the region seek to delay the inevitable reductions in their allocation, the Botswana government nevertheless appears overoptimistic in projecting a 41% increase in SACU revenue.

Economic policy: Unions threaten strike action

Although Mr Matambo indicated that negotiations over civil servants' salaries in 2011/12 had only just commenced, it is clear that the government was planning to impose a third year without any cost-of-living adjustment. For their part-despite benefiting from a 10% salary adjustment in 2010 due to changed working conditions under revised public service legislation (November 2010, Economic performance)-the public sector unions have responded angrily, warning of an early recourse to strike action should their demands for a 16% increase not be heeded. Furthermore, the government's forecast for a return to a balanced budget in 2012/13 appears to rest on the assumption that civil service wages would not rise in the next fiscal year either, and this may further embolden unions. Beyond the issue of the pay increase, the unions are anxious for the government to take the recent introduction of collective bargaining over salaries more seriously, moving away from the previous framework under which salary adjustments were simply announced with minimum consultation.

Most opposition leaders have been quick to line up in support of the unions (Guma Moyo, a prominent BMD MP, being a notable exception), although public opinion may be more attuned to the government line that scarce funds should be directed towards the poor. The capacity of the unions to undertake strike action-which is very uncommon in Botswana-may also be complicated by the recent High Court ruling upholding an earlier decision to de-register the Botswana Federation of Public Sector Unions (October 2010, The political scene), an alliance of five leading unions and the main instigator of the planned industrial action, thus depriving it of its rights and immunities. Moreover, Mr Matambo, in a subsequent speech to parliament on February 24th, clearly painted the issue as a choice between retrenchment and wage control. Faced with the alternative of lay-offs, the unions will probably acquiesce to the freeze in 2011/12.

Economic policy: The government targets "poverty eradication"

With regard to policy priorities, as well as improved efficiency and a focus on high-return public investments, Mr Matambo emphasised the need to address poverty, targeting its eradication rather than mere alleviation. However, beyond announcing that an additional P100m (US$14.3m) would be allocated to anti-poverty programmes and that updated information on poverty levels would be available by mid-2011 (itself highly welcome given that the most recent estimate, that 30.6% of the population was living below the poverty line, dates from 2002/03), he was short on details of any new initiatives, and the government remains vulnerable to criticism that is too reliant on populist but unsustainable spending such as labour-intensive public works and agricultural subsidies.

Economic policy: External debt approaches its statutory limit

Regarding government debt, external borrowing (including government-guaranteed debt) is expected soon to reach the statutory ceiling of 20% of GDP, meaning that additional borrowing will target the domestic market. For this purpose, parliament subsequently approved an increase in the government's domestic bond issuance programme by P10bn (US$1.4bn) to P15bn. This is more than sufficient to cover the envisaged deficits, and there is also scope for drawing further on government deposits at the Bank of Botswana (the central bank). As well as additional borrowing, Mr Matambo indicated that there would be an increased emphasis on opportunities for public-private partnerships to fund investments and that there were also plans to resuscitate the flagging privatisation programme.

Government debt
(end-Mar)
 2010a 2011b 
 P bn% of GDPP bn% of GDP
External liabilities11.012.5%19.419.1%
 External debt9.310.6%16.516.3%
 Contingent liabilities1.71.9%2.92.8%
Domestic liabilities6.06.8%6.56.4%
 Domestic debt4.65.3%5.15.1%
 Contingent liabilities1.31.5%1.31.3%
Total debt & contingent liabilities17.019.3%25.925.5%
a Actual; b Estimates.
Sources: Ministry of Finance and Development Planning; Economist Intelligence Unit.

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Economic performance: The BMC is shut down over hygiene concerns

Abattoirs operated by the Botswana Meat Commission (BMC), which holds a monopoly on beef exports from the country (which accounted for 2% of estimated merchandise exports in 2009), were shut down in early February over concerns that they did not meet the rigorous hygiene standards required for sales to the lucrative EU market. The company was given until late February to rectify the deficiencies in time for the next EU inspection. Despite this setback, however, the prospects for BMC, which over the years has often struggled to attract farmers, who prefer the greater convenience (and less exacting standards) of local butcheries, appear to be improving following the introduction of more competitive prices in 2008. Although it still operates well below its annual capacity of 250,000 cattle, 179,000 cattle were processed in 2010-the highest level for a decade. Moreover, the successful eradication of foot-and-mouth disease in the north-east of the country close to the border with Zimbabwe, where the disease is rife, should increase the supply of animals that are eligible for export.

Economic performance: Debswana is to increase production by 20%

Debswana, the joint diamond-mining venture between De Beers and the Botswana government, has announced plans to increase production to 27m carats in 2011, up by 20% from 22.2m carats in 2010. For 2012 a further increase to 30m carats is envisaged, which will be treated as a self-imposed ceiling on production in order to preserve supplies: there is the capacity to produce significantly more. However, this does not rule out additional supply from the planned reprocessing of previously mined ore. In 2010 Debswana contributed two-thirds of the rough diamonds produced by De Beers, which reported year-on-year sales growth of 58%. Improving sales reflected both increased volumes and sharply rising prices, which rose by an average of 27% according to De Beers. As a result of improved profitability at De Beers, the company has stated that it is in a position to start servicing the shareholder loan that it received from the government in 2010 (January 2010, Economic performance). As well as Debswana, there is intense interest in developing additional diamond mining in Botswana; Botswana Diamonds, which was formed in 2010 when Lucara Diamonds took over the development of the AK6 mine, has recently started the bulk sampling of three kimberlite pipes in the Orapa area.

Data and charts: Annual data and forecast

 2006a2007a2008a2009b2010b2011c2012c
GDP       
Nominal GDP (US$ m)11,25512,33613,36112,22414,78816,56417,186
Nominal GDP (P m)65,69275,72891,21387,466100,467115,559130,145
Real GDP growth (%)5.14.42.9-5.47.56.36.0
Expenditure on GDP (% real change)       
Private consumption4.08.57.75.911.04.55.0
Government consumption-2.66.09.67.93.0-1.5-1.0
Gross fixed investment-2.818.87.14.913.07.68.0
Exports of goods & services2.910.0-5.5-33.625.08.010.0
Imports of goods & services-0.226.317.8-7.912.03.04.0
Origin of GDP (% real change)       
Agriculture-0.98.90.526.115.07.05.0
Industry7.01.0-2.3-19.918.98.26.6
Services4.27.39.65.20.85.06.0
Population and income       
Population (m)1.91.91.92.02.02.02.0
GDP per head (US$ at PPP)12,57613,37713,84513,01113,87114,79915,842
Fiscal indicators (% of GDP)d       
Central government revenue40.235.934.832.728.727.525.5
Central government expenditure28.931.140.243.038.433.827.4
Central government balance11.24.8-5.4-10.3-9.7-6.3-1.9
Public debt5.86.16.918.621.621.921.0
Prices and financial indicators       
Exchange rate P:US$ (av)5.846.146.837.16a6.79a6.987.57
Exchange rate P:US$ (end-period)6.036.017.526.67a6.44a7.337.78
Consumer prices (end-period; %)8.58.113.75.8a7.4a7.76.0
Stock of money M1 (% change)29.021.024.5-8.5a15.022.025.0
Stock of money M2 (% change)67.4e31.521.5-1.3a17.423.626.6
Lending interest rate (av; %)16.516.216.513.8a10.811.311.8
Current account (US$ m)       
Trade balance1,9031,607328-754-13670362
 Goods: exports fob4,5225,0524,7543,3374,6905,2865,682
 Goods: imports fob-2,619-3,445-4,426-4,091-4,826-5,216-5,319
Services balance-64-178-204-198-422-446-399
Income balance-773-738-697-452-387-418-415
Current transfers balance8711,1051,040878604795992
Current-account balance1,9381,796468-526-3411540
External debt (US$ m)       
Debt stock3824134381,6802,5042,6042,570
Debt service paid57476685160204229
 Principal repayments45375767849288
 Interest121081775113141
International reserves (US$ m)       
Total international reserves7,9929,7909,1198,704a8,3568,5248,737
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years April-March. e In 2006 the Bank of Botswana changed its definition of M2 to include foreign currency accounts.
Source: IMF, International Financial Statistics World Bank; Bank of Botswana, Financial Statistics; Central Statistics Office.

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Data and charts: Quarterly data

 20082009   2010  
 4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr
Central government finance (P m)        
Revenue & grants6,1797,6222,72510,0737,22210,003n/an/a
Expenditure & net lending8,1769,8019,2059,6709,70510,909n/an/a
Balance-1,997-2,179-6,480403-2,483-906n/an/a
Prices        
Consumer prices (Sep 2006=100)123.5124.5126.9129.9130.7131.9136.4138.9
Consumer prices (% change, year on year)14.012.18.56.45.86.07.56.9
Financial indicators        
Exchange rate P:US$ (av)7.867.937.206.826.666.806.966.84
Exchange rate P:US$ (end-period)7.527.816.796.606.676.797.066.59
Bank rate (end-period; %)15.014.011.511.010.010.010.010.0
Lending rate (av; %)16.816.114.012.712.211.511.511.5
M1 (end-period; P m)7,7687,6377,1757,1627,1087,5468,1787,637
M1 (% change, year on year)24.513.64.1-14.7-8.5-1.214.06.6
M2 (end-period; P m)39,22835,86738,23938,67738,71738,29240,54041,093
M2 (% change, year on year)21.55.36.0-3.1-1.36.86.06.2
Stockmarket index (end-period; 1989=100)a7,0366,4606,2296,9217,2427,4267,3407,393
Foreign trade (P m)        
Exports fobb4,7053,9116,6066,8486,5857,7137,155n/a
Diamonds2,0861,8814,7154,3304,3085,1684,9345,439
Imports fobb-7,825-6,642-6,944-7,206-8,029-8,244-7,545n/a
Trade balance-3,119-2,731-338-358-1,443-531-390n/a
Foreign reserves (US$ m)        
Reserves excl gold (end-period)9,1198,1398,1509,2398,7048,3247,8518,407
a Domestic Company Index. b Balance-of-payments basis.
Sources: IMF, International Financial Statistics; Bank of Botswana, Botswana Financial Statistics; Central Statistics Office.

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Data and charts: Monthly data

 JanFebMarAprMayJunJulAugSepOctNovDec
Exchange rate P:US$ (av)
20086.106.456.566.476.426.596.446.536.787.747.987.84
20097.857.977.987.517.156.956.916.906.676.636.666.69
20106.716.896.806.797.047.076.966.826.736.546.606.58
Exchange rate P:US$ (end-period)
20086.256.416.616.416.396.566.336.596.847.947.897.52
20097.977.967.817.236.916.796.806.836.606.786.566.67
20106.846.956.796.807.057.066.846.886.596.596.766.44
Central government revenue (P m)
20081,2054,4053,4022,4031,3242,4462,2513,5545,0824,4011,236542
20093,9659193,4411,0849886543,9705,2319101,8834,0881,372
20101,1151,7057,182n/an/an/an/an/an/an/an/an/a
Central government expenditure (P m)
2008-1,838-1,677-3,791-2,361-1,883-2,947-2,141-3,003-4,839-2,574-2,206-3,396
2009-2,501-2,331-5,001-2,926-3,172-3,678-2,794-2,747-4,129-2,682-3,354-3,669
2010-2,249-3,235-5,425n/an/an/an/an/an/an/an/an/a
Central government balance (P m)
2008-6332,728-38942-559-5021115512431,827-970-2,853
20091,464-1,413-1,560-1,842-2,184-3,0241,1762,484-3,219-799734-2,298
2010-1,134-1,5301,758n/an/an/an/an/an/an/an/an/a
M1 (% change, year on year)
20089.720.123.618.53.813.130.421.635.939.525.724.5
200921.718.513.66.53.14.1-5.0-3.1-14.7-12.1-14.4-8.5
2010-4.6-1.6-1.211.7-3.014.012.24.56.622.322.5n/a
M2 (% change, year on year)
200824.622.421.518.123.617.820.718.922.524.428.621.5
200919.213.65.35.53.06.02.20.9-3.1-5.3-7.4-1.3
20100.31.86.88.96.26.05.010.06.210.011.1n/a
Bank rate (end-period; %)
200814.514.514.514.515.015.015.515.515.515.515.515.0
200915.014.014.013.013.011.511.511.011.011.011.010.0
201010.010.010.010.010.010.010.010.010.010.010.09.5
Lending rate (end-period; %)
200816.016.016.016.016.516.517.017.017.017.017.016.5
200916.516.415.514.514.513.013.012.712.512.512.511.5
201011.511.511.511.511.511.511.511.511.511.5n/an/a
Stockmarket domestic index (end-period; 1989=100)
20088,3178,1878,1297,2596,9357,1757,2677,7378,4548,3597,8207,036
20096,8026,4986,4606,2206,0906,2296,3936,7486,9217,0117,4737,242
20107,3327,6837,4267,5477,2707,3407,4747,4387,3937,3547,162n/a
Consumer prices (av; % change, year on year)
20088.49.09.911.212.114.515.015.014.013.115.113.7
200912.811.711.710.18.47.06.06.17.06.95.05.8
20106.16.16.07.17.87.77.06.77.07.27.27.4
Foreign-exchange reserves excl gold (US$ m)
200810,03210,25210,23710,34610,16710,00310,29210,1979,5899,1659,1019,119
20098,6538,1058,1398,1658,3638,1508,4238,3599,2399,2489,2408,704
20108,8908,6798,3248,2417,9277,8518,0778,0998,4078,5588,126n/a
Sources: IMF, International Financial Statistics; Haver Analytics; Bank of Botswana; Central Statistics Office.

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Data and charts: Annual trends charts

Please see graphic below

Data and charts: Monthly trends charts

Please see graphic below

Data and charts: Comparative economic indicators

Please see graphic below

Basic data

Land area

581,730 sq km

Population

1.95m (2009; IMF)

Main towns

Population (2008 estimates)

Gaborone (capital): 225,000

Francistown: 94,600

Molepolole: 70,000

Selebi-Phikwe: 56,000

Climate

Subtropical

Weather in Gaborone (altitude 1,000 metres)

Hottest month, January, 19-33°C; coldest month, June, 5-23°C (average daily minimum and maximum); driest months, July-August, 1 mm average rainfall; wettest months, January-February, 105 mm average rainfall

Languages

Setswana and English

Measures

Metric system

Currency

Pula (P) = 100 thebe

Time

2 hours ahead of GMT

Public holidays

January 1st (New Year), Good Friday, Easter Monday, May 1st (Labour Day), July 1st (Sir Seretse Khama Day), July 15th-16th (President's Day), September 30th (Botswana Day), December 25th (Christmas Day), December 26th (Boxing Day)

Political structure

Official name

Republic of Botswana

Form of state

Unitary republic

Legal system

Roman-Dutch law; cases in rural areas are heard by customary courts

National legislature

National Assembly consisting of 57 members elected by universal suffrage, the president, the attorney-general and four members nominated by the president; a 15-member House of Chiefs advises on tribal matters

National elections

October 2009 (legislative); next legislative election due in October 2014

Head of state

President, chosen by the National Assembly

National government

The president, his appointed vice-president and cabinet (reshuffled in January 2007)

Main political parties

Botswana Democratic Party (BDP; the ruling party); Botswana National Front (BNF); Botswana Congress Party (BCP); Botswana People's Party (BPP); Botswana Movement for Democracy (BMD)

President: Ian Khama

Vice-president: Ponatshego Kedikilwe (acting)

Key ministers

Agriculture: Christiaan De Graaf

Education & skills development: Pelonomi Venson-Moitoi

Environment, wildlife & tourism: Kitso Mokaila

Finance & development planning: Kenneth Matambo

Foreign affairs & international co-operation: Phandu Skelemani

Health: John Seakgosing

Infrastructure, science & technology: Johnnie Swartz

Labour & home affairs: Peter Siele

Lands & housing: Nonofo Molefhi

Local government: Lebonaamang Mokalake

Minerals, energy & water resources: Ponatshego Kedikilwe

State president (justice, defence & security): Edwin Batshu (acting)

State president (presidential affairs & public administration): Mokgweetsi Masisi

Trade & industry: Dorcas Makgato-Malesu

Transport & communications: Frank Ramsden

Youth, sports & culture: Shaw Kgathi

Central bank governor

Linah Mohohlo

© 2011 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
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