Deepening Deepening Integration in SADC: Integration in SADC: - PDF document

Deepening Deepening Integration in SADC: Integration in SADC: Macroeconomic Macroeconomic Convergence Issues Convergence Issues for Botswana for Botswana July 2006 July 2006 Keith Jefferis Keith Jefferis Structure of Presentation Structure of Presentation � Botswana Convergence Results in Botswana Convergence Results in � Regional Context Regional Context � Botswana Recommendations Botswana Recommendations � � Impact of Regional Integration on Impact of Regional Integration on � Botswana Botswana � SADC Macro Convergence Programme SADC Macro Convergence Programme � Issues Issues 1

Baseline Study for SADC Baseline Study for SADC Macroeconomic Macroeconomic Convergence Programme Convergence Programme Under FIP: Under FIP: Overview of Preliminary Overview of Preliminary Results Results Primary Macroeconomic Primary Macroeconomic Convergence Indicators Convergence Indicators Year 2008 2012 2018 Inflation Inflation <9.5% <9.5% <5% <5% <3% <3% Deficit/GDP >5% >3% >1% Deficit/GDP >5% >3% >1% Debt/GDP Debt/GDP <60% <60% <60% <60% <60% <60% Current <9% <9% <3% Current <9% <9% <3% Ac/GDP Ac/GDP 2

Secondary Macroeconomic Secondary Macroeconomic Convergence Indicators Convergence Indicators Year 2008 2012 2018 Econ growth Econ growth 7% 7% 7% 7% 7% 7% FX res (imp. 3 6 6 FX res (imp. 3 6 6 cover, m) cover, m) CB cred CB cred to to 10% 10% 5% 5% 5% 5% gov (% rev) (% rev) gov Dom. S (% 25% 30% 35% Dom. S (% 25% 30% 35% GDP) GDP) Dom. I (% Dom. I (% 30% 30% 30% 30% 30% 30% GDP) GDP) Inflation Inflation 20% 18% SADC target 16% 14% 12% 10% 8% 6% 4% 2% 0% Les Les Zam Zam Moz Moz Bots Bots Mal Mal Nam Nam 04 07 04 07 04 07 04 07 04 07 04 07 3

Budget balance (excl. Budget balance (excl. grants) grants) 5% 0% -5% % of GDP -10% -15% SADC target -20% -25% 4 7 4 7 4 7 4 7 4 7 4 7 0 0 0 0 0 0 0 0 0 0 0 0 z z l l m m s s m m s s a a e e o o t t M M a a a a o o L L M M Z Z N N B B Budget balance (incl. Budget balance (incl. grants) grants) 6% 4% 2% 0% % of GDP -2% -4% SADC target -6% -8% -10% 4 7 4 7 4 7 4 7 4 7 4 7 0 0 0 0 0 0 0 0 0 0 0 0 m m z z l l m m s s s s a a e e o o t t a a M M a a o o L L M M Z Z B B N N 4

Public Debt Public Debt 200% 180% 160% 140% SADC target 120% % of GDP 100% 80% 60% 40% 20% 0% 4 7 4 7 4 7 4 7 4 7 4 7 0 0 0 0 0 0 0 0 0 0 0 0 z z l l m m s s m m s s a a e e o o t t M M a a a a o o L L M M Z Z N N B B Current Account of BoP Current Account of BoP 15% 10% 5% 0% % GDP -5% -10% -15% -20% SADC target -25% 4 7 4 7 4 7 4 7 4 7 4 7 0 0 0 0 0 0 0 0 0 0 0 0 m m z z l l m m s s s s a a e e o o t t a a M M a a o o L L M M Z Z B B N N 5

GDP growth GDP growth 8% 7% 6% 5% % of GDP SADC target 4% 3% 2% 1% 0% 4 7 4 7 4 7 4 7 4 7 4 7 0 0 0 0 0 0 0 0 0 0 0 0 z z l l m m s s m m s s a a e e o o t t M M a a a a o o L L M M Z Z N N B B Country Responses Country Responses � Considerable variation: Considerable variation: � – Degree of integration of SADC convergence Degree of integration of SADC convergence – programme into policy framework programme into policy framework – Degree of attention devoted to convergence – Degree of attention devoted to convergence issues issues – Openness to discussion of difficult / critical Openness to discussion of difficult / critical – issues issues – Willingness to question aspects of SADC Willingness to question aspects of SADC – convergence programme convergence programme 6

Country Responses Country Responses � Considerable variation: Considerable variation: � – Availability of macroeconomic data, Availability of macroeconomic data, – especially for official forecasts especially for official forecasts – Availability of independent reports / Availability of independent reports / – commentary / analysis commentary / analysis – Capacity to continue convergence Capacity to continue convergence – monitoring monitoring Botswana Findings Botswana Findings � Botswana Botswana’ ’s convergence performance s convergence performance � good, due to long- -term economic term economic good, due to long record record � No major macroeconomic imbalances No major macroeconomic imbalances � � Will meet primary convergence targets Will meet primary convergence targets � � BUT BUT - - concerns about long concerns about long- -term term � growth prospects growth prospects � Several worrying findings Several worrying findings � 7

Botswana weaknesses Botswana weaknesses � Poor quality of macro data in some Poor quality of macro data in some � areas areas � Lack of updated, publicly available Lack of updated, publicly available � macro forecasts/projections macro forecasts/projections � Sensitivity to (constructive) critical Sensitivity to (constructive) critical � comment – – major contrast with IMF major contrast with IMF comment programme countries programme countries Botswana Botswana Recommendations Recommendations 8

Key Economic Challenges Key Economic Challenges � Boosting investment and long Boosting investment and long- -term term � economic growth economic growth � Reducing poverty & unemployment Reducing poverty & unemployment � � Managing impact of HIV/AIDS Managing impact of HIV/AIDS � � Ensuring fiscal sustainability Ensuring fiscal sustainability � � Promoting economic diversification Promoting economic diversification � � Facilitating new sources of exports Facilitating new sources of exports � Key Constraints Key Constraints � Real exchange rate Real exchange rate - - overvalued overvalued � � Inflation & interest rates Inflation & interest rates – – too high too high � � Impact of HIV/AIDS Impact of HIV/AIDS – – growth, fiscal growth, fiscal � � Productivity Productivity – – too low too low � � High costs of doing business High costs of doing business � – Unavoidable (location, water) – Unavoidable (location, water) – Manageable (bureaucracy) Manageable (bureaucracy) – � Complacency/slow policy implementation Complacency/slow policy implementation � 9

Policy Recommendations Policy Recommendations � All govt. policies to focus more on efficiency, All govt. policies to focus more on efficiency, � productivity and competitiveness productivity and competitiveness � Improve economic flexibility and adaptability Improve economic flexibility and adaptability � � Inflation a key problem Inflation a key problem – – linked to linked to � productivity productivity � Resolve exchange rate and monetary policy Resolve exchange rate and monetary policy � conflicts (active MP and pegged XR) conflicts (active MP and pegged XR) � Strengthen trade policy formulation Strengthen trade policy formulation � Policy Recommendations Policy Recommendations � Resolve FIAS, WBDB issues Resolve FIAS, WBDB issues � – Business licensing, Land Business licensing, Land – – Skills & Recruitment, Work permits Skills & Recruitment, Work permits – � Speed up deregulation and privatisation Speed up deregulation and privatisation � � Improve trade policy coherence Improve trade policy coherence � – Trade facilitation Trade facilitation – – Liberalisation vs. protectionism Liberalisation vs. protectionism – – Use SACU to promote interests – Use SACU to promote interests 10

Impact of Regional Impact of Regional Integration Integration Impact & Relevance of Impact & Relevance of Regional Integration Regional Integration � Trade growth important for Botswana Trade growth important for Botswana � � But smaller SACU members will not be main But smaller SACU members will not be main � beneficiaries of SADC trade integration beneficiaries of SADC trade integration � Botswana Botswana’ ’s main gains from: s main gains from: � – Liberalisation of trade in services (non Liberalisation of trade in services (non- -SACU) SACU) – – Trade facilitation, – Trade facilitation, NTBs NTBs, administrative barriers , administrative barriers – Reduction of SACU tariffs vs. region and – Reduction of SACU tariffs vs. region and RoW RoW 11

Implications of Long- -term term Implications of Long Regional Integration Plans Regional Integration Plans � SADC Customs Union SADC Customs Union � – Revenue distribution, compensation Revenue distribution, compensation – – Expand SACU? Expand SACU? – � SADC Common Market SADC Common Market � – Labour mobility? – Labour mobility? � SADC Monetary Union SADC Monetary Union � – too big and dissimilar? – too big and dissimilar? – XR and monetary policy implications – XR and monetary policy implications – expand CMA? expand CMA? – Outstanding Issues – – Outstanding Issues SADC Macro Convergence SADC Macro Convergence Programme Programme 12