05 Mar 2014

The global economy projections show a 3.7 per cent growth in 2014, compared to the 2013 estimated three per cent, Bank of Botswana governor, Ms Linah Mohohlo has said.

Speaking at the launch of the 2014 Monetary Policy, Ms Mohohlo said the recent upward revision to the forecast reflected improving sentiment for global economic prospects.

Ms Mohohlo stated that there were some risks to the forecast, which related to a potential reversal of capital flows that could follow the ongoing wind-down of asset purchases in the United States of America.

This, she said, could undermine growth prospects for emerging market economies, which had been a major source of global economic growth.

Ms Mohohlo also said the global inflation was projected to maintain the 2013 level of 3.8 per cent, which she said was against the background of stable commodity prices, subdued output growth and persistence of spare capacity, as well as high unemployment rates in major economies.

However, given robust economic activity and lower unemployment rates, she said there might be upward pressure on inflation in some emerging market economies.

The domestic economy, she said, was forecast to grow by 5. 1 per cent in 2014, compared to last year’s Gross Domestic Product (GDP) growth of 5.4 per cent.

“Demand will be supported by the growth in government expenditure, for which budgetary allocations for the 2014/15 financial year have increased by 8.5 per cent, with the bulk of the additional spending concentrated in the recurrent budget,” she said.

“Business confidence remains muted, but the recent successful transfer of diamond aggregation and sales functions from the De Beers London office to Botswana should serve to boost domestic economic activity,” she added.

Furthermore, Bank of Botswana governor said overall, it was expected that pressure on inflation from domestic demand would be low in 2014, as would the impact of foreign price developments.

Therefore, she said inflation was projected to remain within the medium-term objective of 3 to 6 per cent.

This, she said meant that there would be further scope for monetary policy to support economic activity through the current accommodative policy stance, while maintaining price stability.

As usual, she said, the bank would respond appropriately to any sustained deviation of the inflation forecast from the objective range and to any emerging threat to financial stability where the casual factors could be influenced by monetary policy action.

She cautioned that “any upward adjustment in administered prices and government levies or any increase in international food and oil prices beyond current forecasts will present upside risks to the inflation outlook.”

The governor said, “any substantial civil service wage increase could generate inflationary pressures through higher demand and inflation expectations”.

The bank’s formulation and implementation of the monetary policy, Mohohlo said would focus on entrenching expectations of low and sustainable inflation in the medium-term, through timely responses to price developments, while also ensuring that credit and other market developments were consistent with lasting financial stability. ENDS