Botswana could experience a temporary rise in inflation, while declining mineral and customs receipts might put a squeeze on government revenues, the International Monetary Fund said.
In statement at the end of a mission visit to the world’s largest diamond producer, the IMF said increases in the value added tax and electricity tariffs were expected to feed through to inflation, before easing back within the Bank of Botswana’s 3-6% target range during the course of 2011.
Botswana raised the VAT to 12% from 10% effective in April to address a budget deficit after revenue plunged in the wake of the global financial crisis.
Consumer inflation rate rose 7.1% year-on-year in April after increasing 6.0% in March.
“With recovery now under way, fiscal policy is being appropriately redirected away from short-term demand management towards medium-term considerations,” the IMF said.
It noted, however, that the outlook for government revenues was set to become more constrained, reflecting a decline in mineral revenues and customs and excise receipts.
The southern African nation is recovering from its worst recession in more than 40 years. Botswana’s economy contracted 6% last year as demand for diamonds collapsed.
“The government’s intention to balance the budget by 2012/13 is ambitious but warranted in order to put the public finances back onto a sustainable footing,” the IMF said.
In the face of less revenues and huge social challenges, efficient and effective budget management was one of the best tools by which the government could contribute to the diversification of the economy and the development of a vibrant private sector, the IMF said.
“Reforms to budget formulation and management, including greater emphasis on prioritizing spending and delivering results, become critical,” it said.
Pic: Paul Khame