18 Mar 2021

The current projections have revealed that the economy will rebound with real GDP expanding by 8.8 per cent in 2021 compared to the estimated contraction of 7.7 per cent in 2020.

Bank of Botswana’s head of communications and information services, Dr Seamogano Mosanako said the projected recovery in output was premised on, among others, expected improvements in the performance of both mining and non-mining sectors, accommodative monetary conditions, supportive business environment and government initiatives through the Economic Recovery Transformation Plan (ERTP).

The government allocated P14.5 billion or about 8 per cent of 2020/2021 nominal output for spending on the implementation of the ERTP for the remaining years (2021-2023) of the National Development Plan 11 to mitigate the devastating impact of the COVID-19 pandemic resulted in a substantial reduction of economic activities. 

 The outbreak significantly reduced the output of goods and services and incomes in 2020 compared to 2019.

She explained that the government spending, in this instance through the ERTP, would be an injection of money into the economy which would add to aggregate demand that might consequently lead to an increase in prices generally.

In the current situation, where the economic performance was estimated to be below potential, Dr Mosanako indicated that the assessment by the bank was that any impact on inflation emanating from the ERTP would be small, considering that implementation and spending would be spread over several years.

She thus said BoB’s view was that the increase in inflation would be due to supply and transitory factors such as the announced increases in indirect taxes and levies as well as administered prices such as electricity tariffs and Botswana Housing Cooperation rentals and fuel prices.

Notwithstanding these developments, Dr Mosanako noted that domestic inflation was projected to be within the bank’s objective range of three to six per cent in the medium term. 

She said the accelerated implementation and spending for the ERTP could quicken the pace of increase in demand and, therefore, generate higher inflation than currently projected.

Dr Mosanako cautioned that the implementation capacity constraints due to lack of requisite skills, delays in processing payments, supply constraints, bureaucratic and protracted implementation of reforms as well as any prolonged movement restrictions could constrain spending under the ERTP hence dampen demand. 

 This, she said could limit the effectiveness of the ERTP initiatives intended to fast track economic recovery, expansion of productive capacity as well as lay the foundation for long-term economic resilience. Ends