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BOTSWANA AND THE WASHINGTON CONSENSUS
HAVE THE RECOMMENDED POLICIES OF THE WASHIGNTON CONSENSUS BEEN
IMPLEMENTED IN BOTSWANA? WHAT RES (Harvey C, 1996) (Botswana, 1966)ULTS HAVE
BEEN ACHIEVED WHERE THE RECOMMENDED POLICIES HAVE BEEN IMPLEMENTED AND
OR NON-IMPLEMENTED?
INTRODUCTION
The term “Washington Consensus” was the brain child of the English economist John
Williamson. According to Williamson, the term referred to a set of ten specific economic policy
prescriptions that he considered to represent the standard reform package promoted for
developing countries, especially the Latin America by Washington based institutions such as the
IMF and the World Bank. (Williamson, 2002). The policies prescribed encompassed: Fiscal
discipline, redirection of public expenditure towards broad-based provision of key pro-growth,
pro-poor services like primary education and primary health, tax reform, financial liberalization,
a competitive exchange rate, trade liberalization, liberalization of inward foreign direct
investment, privatization, deregulation and secure property rights.
According to Williamson (1996), the phrase Washington Consensus has become a familiar term
in development policy circles. The term has come to be used fairly widely in a second, broader
sense, to refer to a synonym for what is often called market fundamentalism or neo-liberalism
which refers to Laissez-faire Economics, that is , lets bash the state, the market will resolve
everything. However, Williamson dispute the idea of complete bashing of the state, he asserts
that indeed Washington Consensus focused primarily on policies that reduced the role of the
government, but the policies did not imply a complete swing to the opposite extreme of market
fundamentalism and the restrained role of the government. Many interpreted the Washington
Consensus as a policy manifesto that is supposedly believed to be valid for all places and at all
times. It is against this background that this research paper is being undertaken. The paper will
specifically focus on the top five policy recommendation of the Washington consensus being:
Fiscal discipline, Redirection of public expenditure, tax reform, financial liberalization and
competitive exchange rates. The aim is to find out whether these policies have been implemented
in Botswana and the extent to which they have been implemented. Furthermore to find out what
have been the consequence of their implementation and or non- implementation.

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FISCAL DISCIPLINE
The first policy prescription in Washington consensus was Fiscal discipline. Washington
believes in Fiscal discipline and it describes it as: low government borrowing and avoidance of
large fiscal deficit relative to GDP. According to this policy, short run deficits and surpluses
should be welcomed insofar as they contribute to macroeconomic stabilization.
One would not be at fault to proclaim that the policy of fiscal discipline have been long
instigated in Botswana even before the Washington consensus came in to existence. (Leith,
2005) Note that when it comes to fiscal and monetary policies, the government of Botswana has
always been disciplined and fiscally responsible. According to Leith, the government created
shock absorbers between itself and the rest of the economy during the 1970s and 1980s in
response to shocks on Agriculture and mineral revenues which fluctuated around 5% and 10% of
GDP annually. It did this by smoothening expenditure whereby the government expenditure was
let to grow at a slower rate than revenues. This resulted in the government running budget
surplus during favorable shock to revenue and drawing on these surpluses during negative
shocks to revenue. Most recently, in his state of the nation address, the President of Botswana
indicated that, in terms of fiscal management, government succeeded in restoring a balanced
budget during 2012/13 financial year after four years of budget deficit and it is currently running
a budget surplus. Government’s fiscal discipline meant that, it was able to provide
macroeconomic stability which is crucial to private sector investment and growth. It has been
able to achieve its inflation target of 3 to 6% which currently stands at 4.5 %. It is safe to
conclude that in terms of fiscal management Botswana has always been consistent with the
Williamson’s Washington consensus.
REDIRECTION OF PUBLIC EXPENDITURE
The second policy reform involved redirecting public expenditure towards provision of key pro-
growth, pro-poor services like primary education, primary health and infrastructure development.
Education has been a key development priority for Botswana since independence. The first
president, the late Sir Seretse Khama uttered the following words in a speech given at Uppsala,

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Sweden on 11 November 1970, “most important of all the colonial government failed to
recognize the need to educate and train our people so that they could run their own country. Not
one secondary school was completed by the colonial government during the whole 70 years of
British rule.” (mmegi, 2015) The late president was explaining what continues to be the principal
basis guiding the large budgetary investment in education. The Ministry of Education has been
getting a lion’s share in the recurrent budget and often appears in the top five of the development
budget from time immemorial. This shows the government’s commitment towards building the
human capital of the poor. The government invested substantially in basic education which is
defined as 10 years of schooling and according to MDG report Botswana has already achieved
universal access to primary education (MDG report, 2004). The government’s expenditure on
Education is consistent with the second policy of the Washington Consensus. However, more
primary, secondary and tertiary institutions have been established in recent decades, producing
increasing number of graduates whom the economy has failed to accommodate. The economy
has failed to keep pace or foster sustainable entrepreneurial development. The effect has been a
cycle from primary school level to unemployment, signifying a waste in education investment.
The government has also invested substantially in provision of primary health. The introduction
of programs such as Prevention of Mother to Child Transmission (PMTCT) by the Ministry of
Health helped to reduce the incidence of Children born with HIV/ AIDS and child mortality rate.
Patients living with HIV are also being given free drugs which greatly reduced death rate in the
country. In terms of redirecting expenditure towards pro-poor and pro-growth services, the
government has done fairly well as evidenced by its economic standing, though there is still
room for improvement.
TAX REFORM
Increased tax revenues are an alternative to decreased public expenditure as a remedy for fiscal
deficits. With regard to the tax policy, the principle is that the tax base should be broad and
marginal tax should be moderate.
The tax base refers to all items or activities subject to tax. Tax base are usually measured as a
dollar amount to which a tax rate is applied, for example, the total dollar amount of taxable
income in the case of personal income tax. A broad based tax is the one that taxes most of the
potential tax base, for example, a broad based sales tax is the one that applies to almost all

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purchases of goods and services (ITEP, 2011). The notion behind broad based tax is that, at any
given tax rate, broad based tax will raise more revenue than narrow based tax because more is
taxed. A broader based tax and moderate marginal tax rate also makes it more likely that the tax
system will treat all the economic activities the same, which helps ensure that the tax system will
not discriminate in favor of some tax payers over others.
Over the years, Botswana’s rapidly changing economic climate has resulted in various tax
regimes. After independence, the government introduced the Income Tax Act of Botswana,
which is a primary tax law in the country. This act was aimed to improve the tax structure and
collection in Botswana. The discovery of diamonds in the mid-seventies led to a dramatic boost
in state coffers resulting from mineral revenues, which is still the largest and significant tax base
in Botswana. With the development and increase in population, the ever increasing government
expenditure on social services (old age pension, health and education etc.) has resulted in the
government moving to other forms of taxation. The introduction of taxation against luxury items
such as cigarettes and alcohol and most recently sales tax has been introduced to cover more and
more items and services. With respect to Washington policy on Tax reform, it can be said that
Botswana is in transition from a narrow based tax system to a broad based tax as evidenced by
introduction of various tax reforms over the years. Botswana faced four year period of budget
deficits during the recent financial crisis, but as the President alluded to, it managed to restore its
budget surplus in 2012/13 financial year which can be attributable to increased tax revenues.
FINANCIAL LIBERALIZATION
The fourth policy under the Washington Consensus is that the interest rate should be market
determined. The objective of this is to avoid resource misallocation that results from the
government rationing credit according to arbitrary criteria. The other principle is that interest rate
should be positive and moderate in real terms to avoid capital flight.
According to Charles Harvey (1996) Botswana’s financial sector policy has always been liberal
since independence. When newly independent countries in Africa intervened extensively in the
ownership, management and credit allocation of domestic banks, Botswana’s financial policy
remained different from other African nations. The government continued with non-interference
policy in the financial market, but opted for indirect policy instruments. Botswana did not face a

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problem of negative interest rate like other African countries. The commercial banks’ prime
lending rates was above inflation between the years 1981 to 1990 (Harvey, 1996). The most
significant form of government intervention was that the government itself became a major
lender, financed mostly by budget surplus. Botswana’s financial policy has always been
consistent with the Washington policy, but it is worth noting that its financial policy was not as a
response to IMF or World Bank conditionality. Financial liberalization policy adopted by the
government led to Botswana to transform from one of the world’s poorest countries after
independence to the prosperous country it is today being classified as middle income country.
COMPETITIVE EXCHANGE RATE
According to Washington consensus, exchange rates may be determined by market forces, or
their appropriateness may be judged on whether they are consistent with macroeconomic
objectives. The dominant view is that achieving competitive exchange rate is more important
than how the rate is determined.
Botswana’s choice of an exchange rate regime was largely consistent with the preference among
developing countries for intermediate exchange rate frameworks, which captures the positive
aspects of the two extremes of fixed and flexible exchange rate system. (BOB, 2015). Botswana
employed a fixed basket peg to enable occasional adjustment in order to support the
competitiveness of tradable goods produced or the objective of price stability. From 1980, the
exchange rate was adjusted occasionally, as both an anti-inflation tool and to promote domestic
industry competitiveness. From early 1990s, the export competitiveness objective became more
dominant. In 2005 a crawling band exchange rate mechanism was introduced with the objective
of enabling an automatic nominal adjustment of the pula exchange rate with a view of
maintaining Real Effective Exchange Rate stable. Botswana has maintained an objective of
competitive exchange rate policy, which is consistent with the Washington Consensus. This has
made Botswana to be competitive in the export market and also it has never experienced a major
balance of payments crisis.

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CONCLUSION
Even though the policy descriptions in the Washington consensus were specifically meant for
crisis wracked developing countries of the Latin America, it is evident that Botswana subscribed
to these policies. Some of the policies recommended in the Washington Consensus, have been
long established in Botswana, even before Williamson coined them in 1989. The policy such as
Financial Liberalization has long been recognized in Botswana, some years after independence
in 1966, Botswana did not even have a Central bank, and it was only established in 1975. One
author noted that, it was untypical that Botswana’s financial liberalization was not due to
imposed conditionality of the Washington based institutions such as the World Bank and the
IMF. The government did not place any controls that hampered the development of the financial
sector which led to the economic growth of the country. It is worth noting though that, the
government did not employ the ideological view of the far extreme market fundamentalism, it
did intervene with indirect policies which were geared towards ensuring fair allocation of
resources and in turn beneficial to the economic growth of the country.
In a nutshell, even though this paper looked only on few selected policies of the Washington
Consensus, one would not be at fault to conclude that Botswana did implement policies
prescribed in the Washington Consensus. The policies were interpreted appropriately unlike in
other countries such as Thailand, which let the market to determine everything with little or no
government intervention. The consequence had been the financial crisis which spread throughout
the East Asian countries. Botswana is now prosperous due to careful implementation of these
policies. That is not to claim that Washington Consensus, in any version, constituted a policy
manifesto for economic growth and development. Other countries such as China remained
largely Communist states but they managed to attain economic growth even without
implementing policies recommended in the Washington Consensus.

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