Macroeconomic performance and outlook
Real GDP is estimated to have grown 3.5% in 2019 after averaging nearly 4% in 2016–18, driven by the continued recovery in diamond production, following a rebound in global demand and resumption of oper- ations at the Damtshaa mine in January 2018. With a fairly robust and broad-based expansion in nonmining activities. Supported by higher public investment and accommodative monetary policy, Botswana’s economy has recovered well from the recession in 2015.
Inflation averaged 3% between 2015 and 2018 and will remain stable at about 3.1% in 2019. Monetary policy has been progressively loosened, with peri- odic reductions in the policy rate (to 4.75% in August 2019 from 5% in October 2017). Low inflation reflects a combination of low domestic demand and modest increases in foreign prices.
The fiscal position has weakened on the back of higher spending associated with stimulating the econ- omy and lower mineral revenues and receipts from the Southern African Customs Union (SACU). The fiscal deficit is estimated at 2.4% of GDP in 2019, financed primarily through drawdowns of fiscal savings and issu- ance of securities under the Government Note Pro- gram. Public debt, estimated at 23% of GDP in 2019, thus remains low.
The external position remains moderate, though the surplus in the current account shows signs of narrowing and is estimated to drop to 1.0% of GDP in 2019 from 1.9% in 2018. Faced with volatile diamond export rev- enues, the government has financed its public invest- ments through reserve drawdowns rather than foreign debt. International reserve buffers have thus been declining since 2016, but remain high ($6.6 billion at the end of 2018, or 13 months of imports).
Tailwinds and headwinds
The medium-term outlook remains positive, with growth projected to rise to 4.2% in 2020 and 5.1% in 2021.
Conducive conditions include accommodative mone- tary policy, initiatives to improve the business climate, and ongoing strategies laid out in the 11th National Development Plan to diversify both production and exports away from mining into other growth-enhancing and job-creating sectors. When implemented, these initiatives should accelerate growth over the medium term, strengthening the government’s ability to address socioeconomic challenges and improve human devel- opment outcomes.
The Economic Diversification Drive is supporting local production of goods and services. Eight special economic zones have been identified. The Revitalization Program offers incentives to firms to invest in preferred industries. And the Cluster Development Initiative seeks to improve business productivity, value chains, and competitiveness in five sectors.
Despite the positive outlook, Botswana’s economy faces significant external headwinds from weaker global diamond demand. Other risks arise from ongoing weak growth prospects of South Africa and lower SACU rev- enues. This reflects the country’s heavy dependence on exports of diamonds. Despite rapid economic progress and its benefits to the country, the economic base remains narrow. Spatial poverty is still high in rural areas, remote communities, female-headed house- holds, and among those with low education. Inequal- ity remains high despite recent improvements. At 18%, unemployment is also high, especially for youth. To address these issues, the country would benefit from diversifying its current development model driven by diamond mining and public sector–driven investments.
Botswana needs to transition to a private sector– driven model and undertake reforms to exploit global and regional comparative advantages. The small domestic economy means that the expected benefits from this transition would bear fruit only if the country relies much more on exports. That requires fostering private firms that can integrate competitively into global value chains by addressing constraints that hinder pri- vate sector engagement in trade and investment.
Health sector preparedness
The 2019 Global Health Security Index ranked Botswana 139 among 195 countries globally and 26 among 54 Afri- can countries, with a low score of 31.1 (of 100). The coun- try has received personal protective equipment donations and trained and equipped its health workers for COVID–19 case management. The government established a multi- sectoral public health emergency committee and allocated 15% of the fiscal 2020–21 recurrent budget to the Health and Wellness Ministry. Its Health Financing Strategy will enhance efficiency by involving the private sector in health service delivery. And all public hospitals are connected through the e-Health Strategy, increasing their efficiency through information communication and technology.
Aware of the health system’s limitations, the government priority is to step up preventive measures, including travel restrictions, closures of borders and public places, and suspensions of large public gatherings. With WHO sup- port, the government has equipped eight key isolation facilities countrywide and runs frequent public awareness campaigns. It declared a six-month state of public emer- gency and a two-month lockdown effective 2 April 2020, to be removed in a phased manner. The government also set up a privately and publicly financed COVID–19 Relief Fund to support employment, stabilize businesses, pur- chase strategic supplies and services, ease doing busi- ness through targeted fiscal policy incentives, and finance a post COVID–19 recovery plan. To boost liquidity and reinforce financial stability, the Bank of Botswana eased monetary policy and commercial bank access to central bank liquidity by reducing the bank policy rate to 4.25% from 4.75% and the prudential capital adequacy ratio to 12.5% from 15.0%, among other policy measures. The revival of tourism will largely depend on the success of mit- igating the pandemic and the easing of regional and global lockdowns, especially travel. Supportive government interim measures like reengineering the tourism industry through virtual tours and e-marketing would help ensure its recovery.
The government securities yield curve extended to 25 years with five benchmark points along the curve (2-5-10-15- and 25 years).
Botswana Government Bonds have been included in the African Development Bank’s African Bond Index (ABMDI) and was 2nd in the 2017 Ranking Report.
The government issues debt primarily for capital market development and not to fund the budget. The issuance program is capped at 40% of GDP apportioned as follows: 20% for domestic debt and 20% for external debt. Bonds and Treasury bills are issued through quarterly auctions, determined by the joint Bank of Botswana/Ministry of Finance and Economic Development Bond Auction Committee.
There are currently 5 benchmarks with large issue amounts: 2-5-10-15-20 and 25 years.
Constructing a government yields curve is one of the considerations in the government issuance strategy in terms of both new and reopening of existing benchmarks. This helps with repricing and price discovery.
Yield curve calculation models
Primary dealers quote rates from the markets. Bloomberg also provides yields in real time for individual bonds.
To fill the gap between two benchmark points, the linear interpolation method is used for reporting purposes.
Yield curve managed by
The Bank of Botswana (Central Bank) is in charge of calculating the yield curves on a daily basis.
The yield curve can be accessed from Bloomberg and Reuters.
Challenges in building an efficient yield curve
- Narrow investor base: there are few investors (mainly institutional investors) who buy and hold.
- Limited and illiquid secondary market: bonds are illiquid, because of the limited stock investors buy and hold.
- Limited competition: the only primary dealers are local commercial banks.
Guide to Buying Bonds
Procedures for market participation
Individuals can participate in the auction process (if they have access to timely information). Alternatively, they can contact one of the Primary Dealers (PDS) appointed by the Central Bank to invest in government securities.
The minimum investment amount in any government securities is P 10,000.
The settlement cycle is T+3 days.
In accordance with the 7th schedule to the Income Tax, non-residents are subject to a 15% withholding tax; residents, except those exempted from tax, on the other hand must pay 10%
There is no capital gains tax.
Botswana has double tax agreements with the following countries:
- South Africa
Openness to international investors
Botswana has been lauded for creating an investor friendly environment. In 2014, the country was rated 52th out of 189 countries in the World Bank Ease of Doing Business. The government is engaged in promoting its private sector; a number of measures have already been taken such as the enactment of the Companies Act regulation and the passing of the new Industrial Development Bill.
The Botswana Export and Development Investment Authority (BEDIA) is the institution that is in charge of promoting the local and international competitiveness of the country. The Ministry of Finance is finalizing a new Foreign Direct Investment Strategy.
Foreign investors are given equal access to investment incentive schemes (grants and loans) for medium and large projects provided they partner with a citizen of Botswana. Grants and loans designed for small and medium enterprises (involving less than P 75,000) are however reserved for citizens of Botswana. Foreigners are allowed to engage in any kind of financial investment (bonds or equities); however, they can only trade and issue debentures of over one year.
Since 2005, the Bank of Botswana (BoB) embraced a strict exchange rate policy. The value of the national currency, the Pula, is maintained within a narrow range from a basket of currencies.
Restrictions on foreign exchange and profit repatriation
Foreign exchange controls were abolished in February 1999. Consequently, any capital or interest can be remitted without limitations or restrictions (subject to availability of foreign currency reserves).
Standard & Poor’s
List of Primary Dealers
The Primary Dealers authorized to operate in Botswana are:
Documents & Resources
Documents - Ministry of Finance
- 2BotsMAPRMPFinal.pdf (1.29 MB)
- 2019_Budget_Strategy_Paper.pdf (620 kB)
- BOTSWANA BOND MARKET DEVELOPMENT STRATEGY (302 kB)
- MediumTermDebtManagementStrategy16-2017.pdf (855 kB)
- Public_Finance_Management.pdf (136 kB)
- Public Finance Management Reform Prog - Botswana (37 kB)
- 2013 Budget Speech for Botswana (350 kB)
Documents - Central Bank
- Bank of Botswana Legislation (72 kB)
- Stocks, Bonds and Treasury Bills Act (853 kB)
- Primary Dealer Agreement - Botswana - 2008 (72 kB)
- Note Programme Memorandum-Botswana (355 kB)
- Bank of Botswana Legislation (173 kB)
- National Clearance and Settlements Systems Subsidiary (50 kB)
Documents - Stock Exchange
- Botswana Stock Exchange listing requirements (1.01 MB)
- Guide to listing on Botswana Stock Exchange (124 kB)
Documents - Other sources
- Understanding the Botswana Bond Market (5.15 MB)