Botswana

Botswana finds itself at a critical juncture, as weak demand for natural diamonds has increased the need to diversify sources of growth. Economic activity is expected to continue contracting this year, reflecting a further drop in diamond production and in non-mineral activity. Inflation is low and expected to stay within the objective range. The financial sector remains sound, though banking sector liquidity has tightened due to the contraction in the diamond sector; increased government financing and higher capital outflows. Despite some austerity measures, the fiscal deficit is expected to increase to more than 8 percent of GDP this year. Unless additional fiscal consolidation measures are adopted, public debt could rise sharply. Given the weak outlook for diamond exports, the current account balance is forecast to remain in deficit in the next few years, contributing to a further decline in international reserves.