24th August 2023
Own Correspondent
The recent announcement of an agreement in principle between the Government of Botswana and the De Beers Group on a new Debswana Mining Licence and new Sales Agreement is expected to be positive for medium-term growth revealed the Bank of Botswana(BOB) Monetary Policy Committee.
It however asserts with the dissipating impact of increases in administered prices in 2022, the economy is expected to operate below full capacity in the short term and, therefore, not generate demand-driven inflationary pressures. However, inflation is forecast to be within the objective range in the medium term 3 and closer to the upper bound.
The MPC has therefore decided to maintain the Monetary Policy Rate(MPR) at 2.65 percent, despite a significant decrease in headline inflation from 4.6 percent in June to 1.5 percent in July 2023, breaching the lower bound of the Bank’s medium-term objective range of 3 – 6 percent.
It says the fall in inflation was mainly due to the dissipating impact of the earlier increase in domestic fuel prices in the corresponding period in 2022 (base effects).
Furthermore, inflation fell on account of the downward adjustment in domestic fuel prices effected on June 21, 2023. Inflation is forecast at 1.2 percent for August 2023 and the MPC projects that inflation will remain below the lower bound of the objective range temporarily and revert to within the objective range from the first quarter of 2024 into the medium term.
The projected low inflation is due to, among others, subdued domestic demand and the downward revision in recent forecasts of international food prices and trading partner countries’ inflation. The risks to this inflation profile/trajectory were assessed to be balanced.
The MPC believes that inflation could have been higher than projected if international commodity prices increase beyond current forecasts, supply and logistical constraints persist and the reversal of global economic integration (geo-economic fragmentation) gains pace.
Furthermore, any possible upward adjustment in administered prices that is not factored in the current projection may lead to higher inflation. However, inflation could be lower than anticipated because of the possibility of weaker domestic and global economic activity, possible disinflationary effects of higher monetary policy rates globally, stronger-than-anticipated appreciation of the Pula against the South African rand, and restrained international commodity prices.
According to the July 2023 World Economic Outlook Update, global output growth for 2022 is estimated at 3.5 percent and is forecast to moderate to 3 percent in both 2023 and 2024. South African real gross domestic product (GDP) grew by 1.9 percent in 2022. The South African Reserve Bank expects growth to weaken to 0.4 percent in 2023 but to improve to 1 percent in 2024.
For Botswana, real GDP increased by 5.8 percent in 2022, lower than 11.9 percent recorded in 2021.
The Ministry of Finance projects GDP to grow by 3.8 percent and 4.4 percent in 2023 and 2024, respectively. The MPC notes the growth-enhancing economic transformation reforms and supportive macroeconomic policies being implemented.
These include accommodative monetary conditions, improvement in water and electricity supply, implementation of the Economic Recovery and Transformation Plan and the two-year Transitional National Development Plan, as well as reforms to further improve the business environment (for example, the promulgation of the Credit Information Act and Movable Property Act both of which have the potential to make credit more accessible).
