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Alcohol levy slash, fuel hike won’t move November inflation

Economists and researchers said the November inflation would not change much despite the slash of the alcohol levy or the recent increase in fuel prices.

On the beginning of this month the Ministry of Investment, Trade and Industry took a decision to cut the alcohol levies by 20 percent while the Ministry of Mineral Resources, Green Technology and Energy Security hiked fuel prices. These changes will not have significant inflationary effect according to experts.

On the reduction of alcohol levy, FNBB economist MoatlhodiSebabolesaid “the 20 percent reduction in levy is not significant enough to move the headline inflation because alcohol beverages weight is low on the Consumer Price Index, so minimal impact on inflation.”  Sebabole said the fuel prices increase to slightly push up inflation from its current 12 month averages of 3.1 percent. He said the forecast is for inflation rate of 3.5 percent for 2018.

They will be upward pressure on inflation, but minimal. He said administered prices of fuel, water and electricity will induce upward pressure on inflation whereas the reduction in alcohol and communication tariffs will exert downward pressure.  “That means we are having supply side inflationary pressure (cost push); not demand side (demand pull). The FNBB researcher concluded that inflation will remain low and close to the lower inflation objective.

Another economists Garry Juma, a top economic and market researcher at Motswedi Securities, concurred with Sebabole that inflation will not be moved that much next month. He said this is because fuel prices were increased just in the beginning of this month (15 October 2018). He said people should not expect “a sudden jump in inflation” that soon.

KBL refusal to decrease prices

Just after government decision to slash down the alcohol levy, Botswana’s premium brewer Kgalagadi Breweries Limited (KBL) decided not to follow suit and decrease alcohol prices, a decision which was met with a lot of disapproval.  In a leaked communication believed to be destined to liquor outlets such as bottle stores, wholesalers and distributors, written by Botswana and Namibia Managing Director Renaud Beauchamp to “Dear Valued Customer”, the brewer said it, “will not be reducing prices on its products.”

KBL spokesperson MasegonyaneMadisa confirmed that the letter was from the brewer to liquor outlets. He said KBL is yet to release a statement on their stance regarding the reduction of the alcohol levy. The reason being, the brewer sees this as “an opportunity to recover and to return to profitability.” This statement was made much to the chagrin of alcohol drinkers who stopped short of calling the brewer opportunistic, capitalist and a vulture.

This name calling thronged local radio stations and social media platforms.  KBL said the hiking of the alcohol levy by government in the past affected their Corporate Social Investment (CSI) initiatives which had to roll back. The reduction of alcohol levy which the brewer called a “breather” will improve the company’s financial performance which will help sustain jobs in Botswana and in the process enable KBL to implement robust Corporate Social Investment (CSI) projects “in order to play a positive and meaningful role within the communities it operates.”

However, Juma warned against KBL not following suit and decreasing prices as expected by alcohol consumers. He explained that KBL stands a risk of losing its customers and this will make the brewer’s market to go down since drinkers have always been desperate for reduction on alcohol prices. Juma hopes the refusal to reduce prices is only a temporary move because it will cause frustration to KBL’s market.He gave an example that consumers will now opt for KBL rivals and take in imported beverages to avoid paying more for alcohol.

“There could be a consumer switch, especially when important beverages become much cheaper. This will make drinkers to desert the KBL products for imported alcoholic beverages,” said Juma. According to Monetary Policy  Report of October 2018, Monetary policy has, so far in 2018, been implemented in the context of a favorable medium-term inflation outlook, associated with moderate domestic demand resulting from the restrained increase in personal incomes and modest increase in foreign prices.

Hence, the Bank Rate was maintained at 5 percent at the October 2018 Monetary Policy Committee meeting. The last policy change was in October 2017, when the Bank Rate was reduced by 50 basis points from 5.5 percent to 5 percent, said the Report. The Report further says upside risks to the inflation outlook relate to any substantial upward adjustment in administered prices, international oil and food prices as well as government levies and taxes beyond current forecasts. 

However, the report says, restrained growth in global economic activity, technological progress and productivity improvement, along with modest wage growth, present downside risks to the inflation outlook. The Bank’s formulation and implementation of monetary policy focuses on entrenching expectations of low and sustainable inflation through a timely response to price developments. The Bank remains committed to responding appropriately to ensure price stability without undermining economic activity.

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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