21 Jun 2020

The Bank of Botswana’s (BoB) monetary policy committee has decided to maintain the bank rate at 4.25 per cent.

Inflation eased from 2.5 per cent in April to 2.4 per cent in May, remaining below the bank’s objective range of 3-6 per cent. It is forecasted to revert back to within the objective range in the third quarter of 2021, which is a significant downward revision from the April 2020 forecast.

Addressing members of the media via a team platform on June 19, BoB governor, Mr Moses Pelaelo said the real Gross Domestic Product (GDP) grew by 3 per cent in 2019 compared to 4.5 per cent in 2018.

He said the lower increase in output was attributable to a contraction in mining output as well as a deceleration in non-mining GDP growth. He noted that mining output contracted by 3.9 per cent in 2019 compared to an increase of 7.9 per cent in 2018 due to the weak performance of the diamond, soda ash, copper and coal sub-sectors.

Mr Pelaelo said non-mining GDP grew by 3.8 per cent in 2019 compared to 4.1 per cent in 2018. He added that the slower expansion in non-mining GDP was due to a deceleration in output growth of the manufacturing, construction, transport and communications, and social and personal services sectors. 

Mr Pelaelo said projections by both the Ministry of Finance and Economic Development and the International Monetary Fund (IMF) suggested a sharp deterioration in economic growth for Botswana in 2020.

He noted that the April 2020 World Economic Outlook and the IMF forecasted GDP to fall by 5.4 per cent this year before rebounding to 6.8 per cent in 2021. The Ministry of Finance and Economic Development on the other hand estimated that the economy would contract by 13.1 per cent and rebound to a 3.9 per cent growth in 2021.

He said even with economic recovery in 2021, the contraction in 2020 equated approximately a two-year loss of output. He added that a wide range of forecasts attested to the challenges of making projections when there was uncertainty about the duration of constrained economic activity, the resultant impact on productive capacity as well as the speed of resumption of production and pace of recovery in demand.

Mr Pelaelo said the contraction in GDP reflected the curtailment of economic activity due to the measures implemented to contain the spread of COVID-19 and safeguard human life.

He said the decrease in global demand and disruption in supply chains as well as curtailed economic activity had affected sources of economic growth for Botswana. He said they included exports such as minerals and tourism. “The COVID-19 pandemic and consequent containment measures have severely curtailed economic activity globally and domestically as production, supply chains, project implementation and provision of goods and services are constrained,” he said.

He added that consumption and spending were disrupted hence domestic demand pressures and foreign prices remained subdued. “Consequently, overall risks to the inflation outlook are skewed to the downside,” said Mr Pelaelo.

He, however, said inflation might rise above current forecasts if international commodity prices increased beyond current projections, and in the event of upward price pressures occasioned by supply constraints due to travel restrictions and lockdowns. Ends