Small Countries with Volatile Revenue : Botswana and Bhutan
Bhutan and Botswana share a number of similarities. The two countries, land locked small states, have grown rapidly over the past few decades, boosted by sustained, large-scale inflows of foreign exchange. Botswana’s annual real growth rate average...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2015
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| Online Access: | http://documents.worldbank.org/curated/en/2015/07/24788392/small-countries-volatile-revenue-botswana-bhutan http://hdl.handle.net/10986/22394 |
| Summary: | Bhutan and Botswana share a number of
similarities. The two countries, land locked small states,
have grown rapidly over the past few decades, boosted by
sustained, large-scale inflows of foreign exchange.
Botswana’s annual real growth rate averaged 9 percent over
the past 40 years, driven by diamond exploration, whereas
Bhutan has taken full advantage of generous foreign aid
inflows to achieve an average growth rate of 8 percent per
year for the past 30 years. However, after decades of rapid
growth, the production base of both countries remains very
narrow and the economy continues to directly or indirectly
dependent on government demand. Job creation, particularly
for the youths, is an important policy issue. Despite these
similarities, Bhutan and Botswana exhibit an interesting
contrast with regard to the management of volatile foreign
exchange inflows, and its macroeconomic consequences.
Notwithstanding the serious impact of the recent global
crisis, today Botswana’s external position remains solid,
guarded by sizable international reserves and low external
debt. In contrast, Bhutan has accumulated large external
debt and its international reserves are under significant
pressure. This paper discusses Bhutan and Botswana’s
experiences with managing volatile foreign exchange inflows.
It assesses the nature and domestic economic consequences of
volatile flows, and analyzes the policy measures that have
been used to respond to revenue volatility. The structure of
the paper is as follows. Section two analyzes Botswana’s
experience of managing large, volatile diamond export
earnings. Section three reviews more recent experience of
Bhutan. Section four draws policy lessons from the
experience of two countries. Finally section five concludes
the paper. |
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