26 Feb 2020

The domestic economy is forecast to grow by 4.4 per cent this year, 0.8 per cent higher than the 2019 estimate of 3.6 per cent.

  Presenting the 2020 Monetary Policy statement in Gaborone on February 25, Bank of Botswana (BoB) governor, Mr Moses Pelaelo explained that the improvement was premised on conducive financing conditions associated with accommodative monetary policy.

   He said a sound financial environment, implementation of ease of doing business reforms and concerted efforts towards economic transformation also contributed to positive economic activity.

   Mr Pelaelo said overall, both external and domestic pressures on inflation were expected to begin while it was projected that inflation would revert to within the bank’s 3.6 per cent medium-term objective range from the second quarter of 2020.

    The governor said the forecast incorporated a possible hike in water and electricity tariffs, as well as the announced increase in public service salaries in the 2020/21 financial year. 

 Furthermore, he said, it took into account the small impact of the 1.51 per cent downward rate of crawl on import prices.

    He cautioned that any upward adjustment in administered prices and government levies or taxes and any increase in international commodity prices that were substantially beyond current projections presented upside risks to the inflation outlook.

  Mr Pelaelo explained that current projections suggesting that domestic inflation would, in the short term, revert to and remain within the bank’s medium-term outlook for inflation was in the context of moderate growth in economic activity as well as sound and stable financial system.

 He said prospective developments augured well for the maintenance of an accommodative monetary policy that supported productive lending to businesses and households, resulting in welfare enhancements that also drove economic activity.

    “In contrast, downside risks to inflation arise from prospects of weak global economic activity, the tendency of the ongoing technological progress to lower costs and prices and a possible fall in international commodity prices,” said the governor.

    Regarding the 2020 global economic prospects, Mr Pelaelo said the global economy was expected to grow by 3.3 per cent, higher than the estimated expansion of 2.9 per cent in 2019.

   He said the projection was premised on the anticipated recovery of the under-performing emerging market economies and stated that the overall risks to the global economic activity were skewed to the downside.

    Mr Pelaelo said key risks to the outlook included continuance of geopolitical tensions, uncertain trade relations and social unrest in some jurisdictions as well as the adverse impact of Covid-19.

    He however said global inflationary pressures were forecast to be modest in the short to medium term.

   On another issue, Mr Pelaelo said the crawling band exchange rate policy had served the country well and would continue to complement monetary policy.   

  The policy, he said, bode well for the maintenance of international competitiveness of domestic industries and macroeconomic stability.

   BoB governor noted that the weights of constituent currencies in the Pula basket of 45 per cent for the South African Rand and 55 per cent for the SDR was broadly consistent with Botswana’s trade pattern.

   He stated that a downward rate crawl of 1.51 per cent of the nominal effective exchange rate was implemented this year.

  Mr Pelaelo said the policy framework allowed flexibility to further loosen real monetary conditions through a downward crawl to enhance domestic industry competitiveness and support economic growth.ends