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 fastest-growing economies. Significant diamond wealth, robust institutions, prudent economic management, and a relatively small population of about 2.5 million (2022), have made it an upper-middle-income country with an aspiration of becoming a high-income country.? At the same time, as one of the most unequal countries in the world, Botswana faces significant development challenges - some of which are similar to those faced by countries at lower income levels.
Political Context
Botswana¡¯s stable political environment includes a peaceful, multi-party democratic tradition, with general elections held every five years. The ruling Botswana Democratic Party (BDP) has been in power since independence in 1966.
Economic Overview
Botswana¡¯s macroeconomic policy framework has historically been anchored in prudent macroeconomic policies and solid economic institutions, particularly around managing diamond revenue. It has contributed to a long period of positive economic growth. But over time, Botswana's reliance on diamonds and a public sector-driven model have made the economy vulnerable to external shocks, as diamonds contribute over 90% of total exports and are a major source of fiscal revenues.
Dependence on the capital-intensive mining sector exposes the economy to global shocks and the sector maintains weak links to the rest of the economy. The complexity of exports is low, as most diamonds are exported in rough form. The country¡¯s heavy reliance on minerals, as well as its large public sector and its increasing vulnerability to adverse shocks, have exacerbated its fiscal and external vulnerabilities. The increase in the frequency and magnitude of climate change-related events, especially higher temperatures and changes in precipitation, have increasingly disrupted output and threatened livelihoods, underscoring the need to strengthen the country's resilience and implement investment strategies to support adaptation. Poverty remains high despite Botswana¡¯s relatively high-income level. Job creation has been lagging, unemployment is structurally high at 27.6% (2024 Q1), and the level of inequality (Gini index of 53.3) is among the highest in the world.
Growth is projected to slow down to 1% in 2024, from 2.7% in 2023, reflecting a decline in diamond production and prices due to weaker global demand. Growth will slightly increase over the medium term, driven by the pickup in the global demand for diamonds and the efforts undertaken to diversify the economy.
Inflation declined in the first half of 2024, averaging 3.3% compared with 7.8% in the same period in 2023, supported by tight monetary policy conditions and a reduction in fuel prices. Favorable inflation outcomes and the widening negative output gap have led the Bank of Botswana to reduce the policy rate by a cumulative 75 basis points since December 2023 to 1.9%, significantly below the SACU region average. The overall fiscal deficit reached an estimated 3.2% of GDP in 2023, driven by large increases in capital and recurrent spending, and public debt is expected to pick up and reach 24.5% of GDP in 2024 from 22.7% in 2023. Improving the efficiency of public spending and reorienting expenditures toward investment and human capital to raise productivity, create jobs, and diversify the economy by expanding the modest private sector remains key.
Social Context
Botswana continues to face structural challenges, slow growth, and the lingering impacts of global and climate-related shocks. The unemployment rate¡ªone of the leading causes of poverty and inequality in Botswana¡ªincreased from 18.9% to 23.6% between 2015 and 2023. The labor force participation declined from 61.5% to 59.7% of the working-age population. A series of large shocks, including the COVID-19 pandemic and droughts in 2018/19 and 2023/24, have negatively impacted the livelihood of the most vulnerable, potentially aggravating further inequalities (UNDP, 2021).
In addition to structural factors, such as the low labor intensity of the mining industry, limited private sector development, and urban-rural divisions compounded by disparities in land ownership (UNDP 2021), the education system tends to perpetuate existing inequalities. Tackling these challenges will require enhancing the quality of infrastructure¡ªparticularly water and electricity¡ªand improving social services (education, healthcare, and social safety nets). Furthermore, accelerating reforms to strengthen the business environment and providing effective support for entrepreneurship and private-sector job creation will be crucial.
The Government of Botswana (GoBW) has introduced several initiatives to reduce inequalities and reform its social protection system. In 2020, the Cabinet approved the National Social Protection Framework (NSPF), which aims to consolidate and integrate various programs, and to establish a Single Social Registry (SSR) for more accurate targeting. The framework also seeks to transition from in-kind assistance to cash transfers. However, progress on implementing these reforms has been slow (UNICEF, 2022).
The World Bank¡¯s Human Capital Index (HCI) scores (2020). It means that a child born in Botswana today will be 41% as productive when he/she grows up as he/she could be if he/she enjoyed complete education and full health. This is at par with the average for the Sub-Saharan Africa region, but lower than the average for Upper Middle-Income countries.
Last Updated: Oct 17, 2024
