09 Nov 2021

Independent economic think tank Econsult says contrary to public expectations, they do not expect massive retrenchments following the end of the State of Public Emergency. 

A quarterly commentary from the firm states that while the economy was expected to open up, businesses which have not yet fully recovered from the effects of COVID-19 pandemic might retrench their staff. 

Companies were not allowed to reduce their employment during the 18 month state of emergency, which was introduced to help mitigate the effects of the pandemic. 

Econsult economists note that in many developed countries, the recovery taking place following the removal of COVID-19 restrictions, has seen strong demand for labour, rising wages and falling unemployment. 

“Our view is that fears of a jump in unemployment post state of public emergency are over done,” they say. The commentary states that businesses that have survived are likely to experience stronger demand as the economy recovers, hence were more likely to ‘hire than fire’. 

The commentary further states that the main impact of the state of emergency was likely to have been on the informal sector, which was not protected from retrenchments and was now experiencing improved business conditions as recovery was taking place. 

Meanwhile, the economic firm states that the local economy grew by 4.9 per cent in the second quarter of this year, which is significant when compared to a contraction of 8.6 per cent in the previous quarter.  

This growth has been attributed to an improvement in the global diamond market, which has led to high production volumes and higher rough prices. 

The recovery in the diamond industry had led the Ministry of Finance and Economic Planning to project an economic growth of 9.7 per cent for 2021, showing confidence in the economy as the country continues with its vaccination programme and international trade improves. 

Econsult states that Gross Domestic Product (GDP) growth was 36 per cent higher than in the second quarter of 2020, when the impact of COVID-19 was at its peak. 

The International Monetary Fund (IMF) in its latest data, projects the local economy to grow by 9.2 per cent in 2021 and slow down to 4.7 per cent in 2022. 

Overall, the macroeconomic environment is improving as the financial sector is showing signs of recovery. 

According to Econsult, annual bank credit growth has been on an upward trend, increasing for both businesses and households. 

 The financial sector is robust with adequate liquidity level and declining arrears, it says. 

Meanwhile, the Standard and Poor’s (S&P) Global Ratings also upgraded Botswana’s economic outlook from negative to stable. 

“This is a sign of confidence which should be boosted by the removal of the country from the FATF blacklist,” reads the commentary. 

There are however downside risks such as prolonged higher inflation leading to monetary tightening around the world, which could slow the recovery. 

Further, the slow vaccination pace, especially in low income countries, will delay economic recovery and lead to a deepening of poverty, and even lead to the emergence of new variants that could be resistant to vaccines. 

“The materialisation of any of these risks would inevitably delay Botswana’s recovery,” the economists at Econsult state. 

They are also concerned that there are fears that household budgets are under stress due to reduced incomes, job losses and health care expenses, which will only mount over time, with no clear end in sight. ENDS