Macroeconomic determinants of balance of payments in Botswana

This paper assesses the macroeconomic determinants of balance of payments in Botswana from 2006 to 2016. For empirical analysis, the study employs the Unrestricted Vector Auto Regression (VAR) model which is interpreted through the use Impulse Response Function (IRF). Results revealed that, in Botswana, variations in balance of payments are not exclusively a monetary phenomenon since not only monetary variables (inflation and interest rate) are significant. GDP which included mining revenues was found to be the most significant variable in explaining movements in balance of payments; this concurs with the fact that mining plays a paramount role in Botswana’s macroeconomic stability. Thus, in correcting balance of payments disequilibrium, there is need to employ complementary monetary and fiscal policies.