07 Feb 2022

Local economic recovery has unfortunately been accompanied by rising inflation, Minister of Finance and Economic Development, Ms Peggy Serame stated when delivering the budget speech on February 7.

She said that inflation had reached 8.7 per cent in December. This, Ms Serame said  was the highest inflation rate in a decade, and it was mainly driven by higher global fuel prices and administered prices.

Ms Serame said global economic recovery from COVID- 19 recession in 2020 has caused demand for many goods and services to rise sharply in 2021, pushing up commodity prices and freight costs.

As a result, she said most countries are experiencing higher inflation, adding that good news was that the rise in inflation was expected to be a short term phenomenon and should normalize during 2022.

She said despite the increase in annual inflation, Bank of Botswana maintained the bank rate at 3.75 per cent reaffirming a monetary policy stance to support economic recovery.

She added that the bank forecast that domestic inflation would fall throughout 2022 and return to the 3-6 per cent objective range in the medium term. Ms Serame also said the external accounts or the balance of payments for the country was a deficit of P20.1 billion or 11.6 per cent of GDP was recorded in 2020.

This was in comparison to a deficit of P120 billion or 6.7 per cent of GDP recorded in 2019.

She added that during the first half of 2021, the balance of payments deficit continued, but at a lower rate of 4.4 per cent.

She said the deficit in external accounts reflected net foreign exchange outflows associated with payments for imports, government’s foreign currency payment obligations and offshore investments by pension funds and other institutional investors in excess of revenues and inflow from exports transfers and foreign investment.

Furthermore, she said based on internationally accepted norms, the level of foreign exchange reserve was assessed to be sufficient to meet the country’s international obligations, make external payments of goods and serves, conduct sound macroeconomic policies and providing a buffer against external sources.

The major concern, however she said related to the long term downward trend in the level of the foreign exchange reserves, which pre-dates COVID 19.

“To address this and to begin to rebuild the reserves, it is critical to intensity transformation efforts aimed at achieving diversified, export-led growth,” she said. ENDS